3 Reasons Your Teen Should Be Investing

Each of my sons has grown up to be an adult who prioritizes investing over living large. For that I am grateful. However, if I knew years ago what I know now, I would have supercharged their efforts by teaching and encouraging them to invest as teens. Here's why.

1. Time is their friend

Ask 100 people what they would change if they could go back in time, and chances are, a fair number would say they regret not investing earlier. Once a person learns the power of compound interest, they realize that time is a friend to investors. Here's what I mean:

• Morgan began investing $12,000 per year at age 45. Their investment netted them an average annual return of 7%. By the time Morgan was 67, they had over $588,000 put away.
• Taylor began investing $12,000 per year at age 30, and their investment also brought in an average annual return of 7%. By the time Taylor hit age 67, they had over $1,924,000 ready for retirement.
• Cameron began investing at age 15, and like Morgan and Taylor, enjoyed an average annual return of 7%. They only managed to invest $100 per month ($1,200 per year), but it was over a long timeline. The year Cameron turned 67, they had a $561,000 nest egg.

Giving compound interest time to do its thing is pure magic. The earlier your teen opens a brokerage account (with your help) and begins investing -- even if it's only a small amount -- the better the outcome.

2. There's nothing like real-life experience

For some reason, investing is often treated as one of the great mysteries of the world, like where Cleopatra's tomb is located or the fate of the Ark of the Covenant. It's honestly not that mysterious. At its core, investing is buying assets in a company that you believe will increase in value over time.

Sometimes you get it right, and sometimes you get it wrong. The best any of us hope for is to get it right more often than we get it wrong. And historically, it's worked out pretty well.

The point is, waiting to invest does nothing to demystify the process. The earlier your teen gets their feet wet, the more comfortable they're going to feel diving all the way into the pool. Later, when they're reading about a startup or listening to the daily farm report (yeah, it felt funny to write it) they'll gradually understand more of the terms and feel more comfortable.

In a survey by Talker News in 2022, 76% of people shared their desire to learn more about the important financial decisions they'll have to make in life. Simply put, there are not a whole lot of grown-ups who feel financially confident. Watching shows, listening to podcasts, and reading about investing are all good ways to gain insight, but there's nothing like real-life experience to gain confidence.

3. Mistakes are part of the equation

That same Talker News survey found that seven in 10 adults are intimidated by investing. Since no one is intimidated by the idea of succeeding, it's natural to assume that they're intimidated by the thought of making mistakes or failing.

Allowing a teen to make investment mistakes while living safely at home gives them room to learn that investing mistakes happen, and they don't have to be earth shattering. Investing is a bit like floating on a dinghy in the middle of the ocean. The lifts feel as dramatic as the drops, but as long as they're still afloat, they're doing okay.

It shouldn't take long to realize that it's silly to concentrate on each tiny lift or drop in the market. All that matters is the big, long-term picture.

One reason it may feel scary for a 30-year-old with a young family to begin investing is because even a small loss is perceived as a threat to their family's well-being. A teen who begins investing may lose a few dollars (on paper), but since they're not worried about feeding a family, it's easier to accept mistakes and loss and move on.

Perhaps the best part of encouraging your teen to invest is how much easier it is for them to make it a habit. Say your 16-year-old begins investing. By the time they're 32, they've been doing it for half their life. By then, they understand how it works, are comfortable with the ups and downs associated with investing, and are confident in their own abilities.

What most parents want for their kids is to send them out into the world as confident, capable adults. If teaching them to invest helps accomplish this goal, it feels like a win-win.