My teenage son started his first part-time job a about two months ago. Earning $9.75 an hour, and working 25 hours week, results in some nice income for a teenager. I'm requiring him to save half his earnings to be used for purchasing his own car, or for use when he goes to college in a few years.
I don't want him to just deposit his money into a savings account, however. I really want to use the income from his first job as a tool to teach him about the world of investing.
Here's why it's important to teach your teen about the basics of investing now.
1. Low Interest Rates
Savings account interest rates are currently a fraction of a percent. Not only will my teen see very little return on his money if he just deposits it all into a savings account, but it would actually devalue in real spending power as it sits there.
2. Stock Market History
If he puts this month to work, however, smart and safe investments can yield a much higher return on his money. Over the last few years, the stock market has seen significant gains. There is a very good opportunity to see real growth of his money if he invests it instead of just simply putting it into a savings account.
3. Education for the Future
When he graduates from college and starts his first job, he will likely be flooded with information about 401K programs and investment funds. Helping my teen become familiar with investing and the stock market now will better prepare him for that time.
4. Low-Cost Investment Platforms
I don't want my son spending a lot of his cash to pay an annual fee at an investment firm. Fortunately, there are several low cost or free investment platforms available with which he can invest some of his funds.
There is certainly some risk involved in investing in the stock market, so we can also use this as a lesson in having a diverse portfolio. I would want him to invest in several companies, as well as even keep some of his funds in a savings account.
Teaching Teens About Investing
This is a great opportunity to teach my son about how to make money work for him, as well as hopefully help get a return on his hard earned cash. We can research well known companies together, invest some of his cash, and watch his money grow.
If I want to give my son the skills to be a financially savvy adult, I have to include educating him on investing. Because of the current environment of low savings interest rates, and a favorable market, I believe this is the perfect time to teach him those skills, and help him earn some money as well.
Written by Travis Pizel for MoneyNing and legally licensed through the Matcha publisher network. Please direct all licensing questions to firstname.lastname@example.org.