How to start talking about investing with your kids

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Investing can be quite a complex subject for anyone to master, especially teenagers and young adults.

A Fidelity Investments “Teens and Money 2022 Study” mirrors exactly that sentiment, with more than half of teens aged 13-17 saying investing is too confusing. The study also found that 70% of teens see their family members as financial role models, while only 34% said their family actually talks about investing regularly at home.

Although discussing money can sometimes be awkward or difficult, broaching the subject of investing can seem quite daunting as there is a lot of jargon to learn – index funds, exchange-traded funds (or ETFs), dividends, mutual funds investment – and rules to understand. , such as capital gains and tax loss harvesting.

Below, Select details some ways parents can allocate investments for young people, as well as the benefits of starting to invest early in life.

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How to talk to your kids about investing

John Boroff, vice president of youth investing at Fidelity, has one general advice when it comes to talking to your kids about investing: don’t wait. “There are lots of reasons to talk about money, but the most important thing is to start,” he says.

And there are good reasons to do so. The more you and your family talk about money, the more you will be able to create wealth, according to Boroff.

Start by explaining what the stock market is and show how you can invest in the businesses your children interact with every day. For example, if they enjoy watching Disney cartoons, show them how buying a Disney stock makes them a co-owner.

Then, help them understand how investing in businesses can be a much more profitable experience than spending the same amount of money on something that isn’t needed in the long run. For example, buying a stock of Coca-Cola rather than buying an actual soda can be financially rewarding, especially if you’ve owned it for years.

Keep your kids interested by tracking down a social media account (where they consume the most content) that offers legitimate, age-appropriate personal financial information for your kids. I like to follow the Personal Finance Club on Instagram and Graham Stephan on YouTube and find them quite family friendly.

You can also get them involved by creating a mock portfolio so they can see what it’s like to buy and sell stocks with fake money and track their performance in the market.

As you teach your children about investing for the future, explain to them that although this is not a toy to play with, if used wisely it can give them a lot. more financial freedom later in life.

It pays to invest at a young age

The most important part of investing is letting compound interest works for you. Note that this is a different type of interest than the simple interest you earn on a checking or savings account. Compound interest means the ability to earn even more interest on top of the interest you’ve already earned. Think of it as if it were a snowball rolling down a slope – it will pick up more snow along the way and grow bigger over time.

Here’s how that translates into investing:

Let’s say you start investing $100 in an S&P 500 index fund every month starting at age 16. By the time you reach age 30, your total investment will be $16,800. Assuming a 10% return compounded annually* over a period of 14 years, the value of your account will be $33,569.98. Even if you never invested another dollar between 30 and 60, it would be worth $585,776.09 at the end of those 30 years, assuming a 10% return compounded annually. This is the power of compound interest.

Naturally, a key part of this calculation involves making monthly contributions to your investment account at one time or another. As a teenager, this may be harder to do when you’re not yet employed full time, but the idea is that you can use whatever money you earn, whether it’s through a job after school or summer, to make you After silver.

*Although the S&P 500 has historically generated nearly a 10% average annual return over time, remember that future returns are not guaranteed.

How to invest as a miner

Investing as a minor is a slightly different process than investing as an adult, but the basic principles and ideas remain the same.

Parents or guardians of children under 18 can open one of these investment accounts for them:

  • A Uniform Transfers to Minors Act (UTMA) or Uniform Gifts to Minors Act (UGMA) account, both generally custodial in nature and with certain tax advantages
  • A 529 plan, which is a tax-advantaged account designed to help you save and invest for your education expenses
  • A custodial Roth IRA, ideal when your child has taxable income from any type of job, because it allows you to invest after-tax dollars for tax-free earnings

Each of these accounts comes with different tax advantages. So be sure to consult a tax professional if you have any questions about which account would be best for your child. When you’re considering opening an account, robo-advisor Wealthfront offers a 529 college savings plan, and brokers Vanguard, Fidelity, and Charles Schwab all offer custodial Roth IRAs for your child.

And newer to the teen investment market is the Fidelity® The Youth Account, which gives people aged 13 to 17 the flexibility to buy and sell real stocks (although riskier trading options are limited), ETFs and Fidelity mutual funds. Plus, it comes with a debit card. Learn more about how the Fidelity Youth account works.

Fidelity® Youth Account

On Fidelity’s secure site

  • Minimum deposit and balance

    Teens are not tied to any account minimums and there are no monthly fees

  • Costs

    $0 commission for US stocks online*

  • Prime

    For a limited time: When you (parent or guardian) initiate a new Youth Account and your teen (ages 13-17) downloads Fidelity Mobile® App and activate the new account, your teen will get a $50 deposit as a reward1

  • Investment vehicles

  • Investment opportunities

    Stocks, ETFs and Mutual Funds

  • Educational resources

    Teens can access a financial program designed just for them to learn how to save, spend and invest

*A commission of $0.00 applies to online trades in US stocks and exchange-traded funds (ETFs) in a Fidelity retail account only for retail clients of Fidelity Brokerage Services LLC. Sell ​​orders are subject to an activity assessment fee ($0.01 to $0.03 per $1,000 of principal). Other exclusions and conditions may apply. See Fidelity.com/commissions for details. Employee stock-based compensation transactions and accounts managed by advisors or intermediaries through Fidelity Clearing & Custody Solutions® are subject to different commission schedules.

The Fidelity Youth account can only be opened by a parent/guardian. Account eligibility limited to teens ages 13-17.

1Limited time offer. Terms apply. Before you open a Fidelity Kids account, you should read the account agreement carefully and make sure you fully understand your responsibilities for monitoring and supervising your teen’s activity on the account.

At the end of the line

Investing can certainly be confusing no matter what age you are, but the sooner people learn about it, the better off they will be in the long run. Start small with your own kids by simply teaching them the general concept of investing, and then you can show them how that knowledge is implemented through accounts that make their money grow over time.

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Editorial note: Any opinions, analyses, criticisms or recommendations expressed in this article are those of Select’s editorial staff alone and have not been reviewed, endorsed or otherwise endorsed by any third party.

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