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More Investing Lessons for Kids

If 14-year-old Damon Williams can become an investor, and accumulate $50,000, so can you. 1 Williams, a member of a junior investment club in Chicago, has been learning about stocks, mutual funds and other investments since he was six. Currently he is featured on an episode of the public television series, MoneyTrack, entitled “Kids and Investing." 2 He is an excellent example that when it comes to money you are never too young to learn.

Why bother? Because about 90% of the decisions we make in life relate to money, says Donna R. Jones, chairperson, Youth Investing Committee, National Association of Investors Corporation (NAIC). "Money decisions are very much a part of who we are and how we live," Jones told New York Life in an interview. "They impact your entire life."

Think about it. Money decisions determine whether or not you can afford to go to the movies tonight; where you buy your clothes; whether you purchase one music CD this week or two.

Here's the catch: Smart investing has nothing to do with dumb luck. Plus, there are few if any guarantees. Investing can involve risks. To be successful, you have to invest not just money, but also time to build knowledge. Now is the time to learn.

There Are Two Ways to Make Money
People at work and money at work.

People at work — that's when you work at a part-time job, cut the lawn, earn money. We all do it. Most adults work about 40 hours a week, 50 weeks a year, for 30 or 40 years.

Money at work — that's when you put aside a portion of every dollar you earn or receive. If you invest it wisely, this money can make money for you.

If you want to start learning about stocks, mutual funds and other investment vehicles, here are steps to help you get started:

  1. Talk to your parents. If you are a minor, their support and involvement is crucial. Plus, if they are knowledgeable, they can be the best teachers. Or you can all learn together. Finally, as a minor, you need to work with them to set up accounts or purchase investments, since there are legal restrictions.
  2. Talk to your school about setting up an investment club. "This is an excellent way to learn," stresses NAIC's Donna Jones. "Students get to learn about money and they can do it in a social setting."2
  3. Invest first in knowledge. Intelligent investing is not gambling. It is the result of educated, informed decision making. Visit Web sites about investing for minors. Talk to your parents about books geared to your age level.
  4. Have a goal. Perhaps it is to retire at age 30; to take the pressure off your folks and pay at least a portion of your own college education; or to sock away enough money for your first car. Decide the amount you need and the date you want the money to be available.

If You Need to Save for College
You have a number of options.

You and/or your parents can begin researching about investing in an a Coverdell Education Savings Account or a state-sponsored Section 529 Plan.3 (These are special savings accounts that get special federal income tax treatment under current laws.) (Potential investors of 529 plans may get more favorable benefits from 529 plans sponsored by their state. Consult your tax advisor for how 529 tax treatment would apply to your particular situation.)

Develop a system for putting money aside on a regular basis. Let's say you have a job and a goal to have $500 for a new _________ (you fill in the blank here) two years from today. That means (ignoring interest your money may earn) you need to set aside just under $4.81 a week (4.81 x 104 weeks = $500.24).

Figure out where your money will come from. Some minors take a percentage of everything they earn or receive (such as 20%) and put it toward their wealth-building goal. Others talk to their parents or grandparents about "seed" money (an initial amount of money invested to build wealth).

"With my nieces and nephews," says Jones, "we established stock accounts. On special occasions, we buy additional shares of the stocks they've selected."

Select investments that interest you, whether it is shares of your favorite apparel store at the mall, electronic game manufacturer, computer, etc. When an individual buys ten shares of, say, Dell Computers, that makes them a part owner in the company. That's also why some minors put companies such as Disney, Nike, The Gap and McDonald's on their stocks-to-study list.4

Stick with quality. That goes back to doing your homework. Remember, the goal is to make money, not lose it. Find a company you like AND that looks to be a quality investment. Please keep in mind that with any investment, there is the risk of losing money. Steer clear of hunches or companies that simply have names that sound intriguing.

Get good advice. There are a lot of people who can help you learn and made good decisions. One place to start is with your parents' or grandparents' NYLIFE Securities Registered Representative. Together with your parent or grandparent, he or she can discuss your goals and offer direction and guidance.

Remember This: Money Begets Money
Take advantage of compound interest. Put the money into a reliable vehicle and let it work for you. The chart below illustrates the growth of $1,000 invested each year at two different interest rates.5

Rate 10 years 15 years 20 years 25 years 30 years 40 years
6% $13,180 $23,280 $36,790 $54,860 $79,060 $154,760
8% $14,490 $27,150 $45,760 $73,110 $113,280 $259,906

Slow but steady won the race between the tortoise and the hare. In other words, don't expect to make a fortune overnight. Successful investing takes time and patience. Forget stories about instant riches. Set up a plan and stick to it. That's the best way to help assure your long-term success.

The bottom line: Now is the time to begin learning the ins and outs of investing and wealth building. This helps you lay the foundation today for your long-term financial security. And who knows? Maybe you will be able to retire at age 30?

1 MoneyTrack, a public television series, Season Two, Episode 214
2 MoneyTrack, a public television series, Season Two, Episode 214
3 Offered through NYLIFE Securities LLC (member FINRA/SIPC).
4 These companies are listed for illustration purposes only. New York Life does not endorse any specific investment. Before purchasing any financial vehicle, you are encouraged to thoroughly research the product and talk to a financial professional.
5 Interest rates are hypothetical to illustrate the effects of compounding only. They do not represent the return of any particular investment. They do not take into consideration the effect of fees, expenses, or taxes.

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