Why Teens Should Start Investing Early… And 3 Proven Investing Tips for Every Age.

What do all parents have in common? We want the best for our children. We want our children to grow up to be independent, healthy adults who can achieve their dreams and live fulfilling lives. While money isn’t everything, being able to manage your money is an important part of living a healthy life. Our children’s ability to manage money will affect every step they take in their adult lives, including finding a job, managing their career, renting an apartment, buying a home, and starting a family.

A necessary aspect of money management is how to earn and grow your money. Teenagers today have an opportunity that most of us never had – the ability to invest in the stock market at a young age and earn compound interest. Most adults were not taught the basics of investing as teenagers and/or did not have access to investment platforms. This means that investing may seem too risky or may be intimidating for adults. However, if done the right way, investing early can empower teens to create the life they envision.

“The right way” starts with financial education, according to Eddie Behringer, co-founder and CEO of Copper Banking, a banking and financial education platform aimed at teenagers. Copper was founded with the mission of creating the first financially literate generation and recently launched Copper Investing, the first Registered Investment Advisor (RIA) targeting teenagers and children. Copper’s research shows that teens want to learn about finance and are eager to start investing, but because finance isn’t taught in schools, most teens don’t understand finance.

– 74%: teenagers who do not feel confident in their financial education

– 48%: assessment of a financial literacy exam given to school leavers

– 32% of teenagers can’t tell the difference between a credit and debit card

– 27%: young people who know what inflation is and can calculate simple interest rates

“With inflation on the rise, teens need to go beyond saving—they need to learn about growing wealth,” Beringer says. “One of the biggest wealth-building opportunities for teenagers is timing the market and willingness to take risk. Our research shows that teens are eager to get started, and with Copper Investing, we’ll empower them to become savvy investors from a place of financial education, so parents can also feel secure knowing their teen’s financial future comes first. “

Why invest as a teenager:

Build wealth: Although 2022 was tough, the market is still the best way to build wealth. Most adults have lived through downturns and burst bubbles, and that can make the stock market look dangerous. However, the natural market cycle includes crashes and growth, ups and downs – and even taking into account every market event throughout its history, the market still has an average annual return of 10%. This means that if a 46-year-old had invested $1,000 at age 16, it would be worth about $17,500 today. This is the power of compound interest, and teenagers have a huge opportunity to take advantage of it at an early age.

Empowerment and Independence: Many adults do not understand investing and have missed opportunities to build wealth. Teens who start early will gain an understanding of investing that will allow them to become comfortable with more complex investments as adults. Investing in the market gives teenagers a head start in life and an opportunity to build real wealth. This can open up opportunities and provide the freedom to achieve their dreams and goals.

Inflation: Every year, prices increase, which means your money loses value. Inflation averages 3%, meaning uninvested money loses 3% of its value each year. Last year showed the disastrous effects of inflation. The annual inflation rate for the United States is 7.1% for the 12 months ending November 2022. Even a high-yield savings account earning 3% means you’re guaranteed to lose over 4% this year.

While investing clearly opens up opportunities for teens, it doesn’t come without risk. For investors of all ages, there are some proven guidelines for smart investing.

  1. Start early. It doesn’t matter how old you are or how long you’ve been waiting – start investing now. “Time is the #1 biggest asset for young investors,” Behringer says. “With a longer investment horizon, there is more time for their contributions to grow.”
  2. Invest often. You may have heard of “buying low” and “selling high.” While this is the ideal scenario, no one has a crystal ball or can pinpoint the market. This is why you want to invest on a regular schedule. This way, you will catch both the highs and lows of the market.
  3. Diversify. All investments carry some risk. In general, the greater the risk, the greater the possible loss or gain. Too much risk and you can lose significant money. Too little risk and your portfolio won’t make money. You can minimize your risk by choosing different types of investments, investing in small and large companies and in different industries. Think of it as “not keeping all your eggs in one basket.” If some of your investments go down, that’s okay because you have others that haven’t gone down and will balance out those losses. Teenagers can take more risk because they have more time for their investments to recover and grow. Seniors who are nearing retirement should take less risk because they will need their money sooner. Mutual funds and ETFs are great ways for investors to diversify because they are pre-built “baskets” of investments. Copper Investing uses a proprietary questionnaire that follows industry best practices to specifically assess the risk tolerance of its users. It then matches them with a carefully crafted portfolio within their investment comfort zone.

Finance doesn’t have to be complicated or intimidating, and platforms like Copper can provide simple financial education aimed at young people. If we as parents can remove the taboos and fear surrounding finances and expose our children to saving and investing at an early age, we put them on the path to leading financially sound and independent lives as adults.

Liz Fraser is Director of Education for Copper Banking.

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