Fidelity study reveals most teens think investing is confusing, but here's how parents can help
Posted On June 13, 2022
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Investing can be quite a complex subject for anyone to fully grasp, especially teens and young adults.
A “2022 Teens and Money Study” by Fidelity Investments reflected that sentiment exactly, with more than half of teens between the ages of 13 and 17 saying investing is too confusing. The study also revealed that 70% of teens look up to family members as financial role models, while only 34% said their families actually talk about investing regularly at home.
While discussing money can sometimes be awkward or difficult, bringing up the subject of investing can seem pretty intimidating since there’s a lot of lingo to learn — index funds, exchange-traded funds (or ETFs), dividends, mutual funds — and rules to understand, such as capital gains and tax-loss harvesting.
Below, Select details some ways parents can break down investing for young people, as well as the benefits of getting started with investing early in life.
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How to talk to your kids about investing
John Boroff, VP of youth investing at Fidelity, has one overall general tip when it comes to talking to your kids about investing: don’t wait. “There are a lot of reasons to talk about money, but the most important thing is to get started,” he says.
And there’s good reason to do so. The more you and your family talk about money, the more likely you’ll be able to build wealth, according to Boroff.
Start off by explaining what the stock market is and showing how you can invest in the companies your kids interact with everyday. For example, if they enjoy watching Disney cartoons, show them how buying one share of Disney stock makes them a part owner.
Next, help them understand how investing in companies can be a much more profitable experience than spending the same amount of money on something that’s not needed in the long term. For example, buying a share of Coca-Cola stock rather than buying an actual soda can be financially rewarding especially if you hold it for years.
Keep your kids interested by tracking down a social media account (where they consume content the most) that offers legitimate personal finance information that’s age appropriate for your children. I enjoy following the Personal Finance Club on Instagram and Graham Stephan on YouTube and find them to be pretty family friendly.
You could also get them involved by setting up a dummy portfolio so they can see what it’s like to buy and sell stocks with fake money and track their market performance.
As you’re informing your kids about investing for the future, explain that while this is not a toy to be played with, if used wisely, it can give them much more financial freedom later in life.
It pays to invest at a young age
The most important part of investing is letting compound interest work for you. Note that this is a different type of interest from the simple interest you earn from a regular 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 like it’s a snowball rolling downhill — it will collect more snow along the way and become larger over time.
Here’s how that translates to investing:
Let’s say you start investing $100 within an S&P 500 index fund every month beginning at age 16. By the time you turn 30, your total investment will be $16,800. Assuming a 10% return compounded annually* over the 14-year span, the value of your account will be worth $33,569.98. Even if you never invested another dollar from age 30 until you turned 60, it would be worth $585,776.09 by the end of those 30 years, assuming a 10% return compounded annually. That is the power of compound interest.
Naturally, a key part in this computation is at one point or another making monthly contributions to your investment account. As a teenager, this may be harder to do when you aren’t yet employed full-time but the idea is that you can use any cash you do make, whether it be through an after-school or summer job, to make yourself more money.
*Though 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 minor
Investing as a minor is a slightly different process than investing as an adult, however the core principles and ideas remain the same.
Parents or guardians of children under 18 can open up any one of these investment accounts for them:
- A Uniform Transfers to Minors Act (UTMA) account or Uniform Gifts to Minors Act (UGMA) account, both which are generally custodial in nature and come with some tax benefits
- A 529 plan, which is a tax-advantaged account designed to help you save and invest for education expenses
- A custodial Roth IRA, which is ideal for when your child has taxable income from any sort of job as it lets you invest post-tax dollars for tax-free gains
Each of these accounts comes with different tax benefits, so be sure to consult a tax professional with any questions about which account would be best for your child. When considering where to open an account, robo-advisor Wealthfront offers a 529 college savings plan, plus brokers Vanguard, Fidelity and Charles Schwab all offer custodial Roth IRAs for your kid.
And newer to the teen investing market is the Fidelity® Youth Account, which provides those between the ages of 13 and 17 the flexibility to buy and sell actual stocks (although riskier trading-like options are restricted) ETFs and Fidelity mutual funds. Plus, it comes with a debit card. Read more about how the Fidelity Youth Account works.
On Fidelity’s secure site
Teens aren’t tied to any account minimums and there are no monthly fees
$0 commissions for online U.S. stocks*
For a limited time: When you (parent or guardian) initiate the opening of a new Youth Account and your teen (aged 13 to 17) downloads the Fidelity Mobile® App and activates the new account, your teen will receive a $50 deposit as a reward1
Stocks, ETFs and mutual funds
Teens can access a financial curriculum made just for them to learn about saving, spending and investing
*$0.00 commission applies to online U.S. equity trades and Exchange-Traded Funds (ETFs) in a Fidelity retail account only for Fidelity Brokerage Services LLC retail clients. Sell orders are subject to an activity assessment fee (from $0.01 to $0.03 per $1,000 of principal). Other exclusions and conditions may apply. See Fidelity.com/commissions for details. Employee equity 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 aged 13-17.
1Limited Time Offer. Terms Apply. Before opening a Fidelity Youth Account, you should carefully read the account agreement and ensure that you fully understand your responsibilities to monitor and supervise your teen’s activity in the account.
Investing can certainly be confusing no matter your age, but the earlier individuals learn about it the better off they’ll be in the long term. Start small with your own kids by just explaining the overall concept of investing and then you can show them how that knowledge gets put to work through accounts that grow their money over time.
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Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.