One of the most valuable lessons a child can learn is about the power of compounding interest. Helping your teenager invest is a great way to teach this lesson, help him or her reach money goals, and to encourage a habit that can lead to prosperity and wealth later.
Understand Investing
By the time your child is 14 or 15, he or she should be able to understand basic concepts associated with investing. You can talk about how stocks and bonds work, as well as help your child understand the concepts underlying index funds. The idea of ownership, and of return, can be explained to children.
Additionally, there are a number of books and workbooks available online and via Amazon that can help your teen learn concepts related to investing. Refer your teen to these resources so that they can better gain an understanding of investing.
Another option is to help your child set up with investing games. There are investing games and tutorials online that can provide your teen with practice. These games can be used to help your teen internalize concepts related to investing. This can be helpful as you begin to help your teen research investments that might be of interest to him or her.
Encourage your teen to research likely investments, from Treasuries to index funds to the stocks of individual companies he or she has an interest in. If your teen likes his or her iPod, encourage him or her to research Apple for its suitableness as an investment. Getting your child interested in
Open an Investment Account
As a minor, your child can?t open an investment account on his or her own. Instead, you will have to open a custodial account. Depending on the state laws involved, the account will revert to the child?s complete ownership at age 18 or 21.
You will essentially be the one investing during this time. However, you should invite your teenager to check the investment account statements with you, and monitor his or her account. Your involvement can also serve as a limiting influence on your teenager. While you want your teen to learn to make sound investment decisions, and to learn from small mistakes, you don?t want him or her to be involved in disaster. Monitor, and guide.
Also, consider opening a Roth IRA for your child. As long as your child has earned income, he or she can contribute to an IRA, and you can contribute on his or her behalf (within limits). This is a great way to teach your teenager to get ahead in the retirement savings arena. Your child can take advantage of tax-free growth now; it?s especially valuable since your teen is unlikely to make enough money to actually be taxed, so using after tax dollars to contribute to the Roth IRA has an even greater benefit.
Another investment account that your child can benefit from is a 529 Plan. This money is set aside for your child?s use at college, providing him or her with a clear example of how an investment account with a purpose can aid in the accomplishment of financial goals.
Bottom Line
Your child can watch his or her holdings grow, and learn a valuable lesson about investing that can stick with him or her. The money he or she puts in now will grow to a better future ? and your child will develop good habits that will lead to financial freedom.
? 2012, Miranda Marquit. All rights reserved.
About Miranda Marquit
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