How To Invest For Teenagers

Summary

This video script offers a roadmap for financial success, tailored for teens aged 13 to 18. It emphasizes the importance of early investing through custodial accounts, exploring diverse talents, saving money, and developing skills. The speaker, a self-made millionaire, shares personal insights and practical tips, like obtaining a driver's license and considering alternatives to university. The script concludes with advice on managing finances, avoiding bad debt, starting a side hustle, and leveraging compound interest for long-term investment growth.

Takeaways

• 🚀 Start investing early to take advantage of compound interest and time in the market, especially at ages 13 to 18, to grow wealth rapidly.
• 📋 If under 18, consider opening a custodial account with the help of a parent or guardian to begin investing in stocks and shares.
• 💼 At age 14, use the freedom from monthly bills to try various ways to make money and learn from different activities, not just for income.
• 🎁 Ask for cash gifts or get a part-time job at age 15 to start saving and avoid the temptation to spend it all on non-essentials.
• 🚗 Obtain a provisional driving license at 15 and pass the driving test at 16 to increase independence and professional opportunities.
• 🛠 Invest in equipment and skills at 16 to stack abilities that can be used to generate income in the future.
• 🏦 Open separate current and savings accounts at 18 to manage finances effectively and start building an emergency fund.
• 💳 Get a credit card at 18 to responsibly build a good credit score, which is crucial for future financial opportunities.
• 🌐 Open an investment account to take advantage of tax-efficient savings options like Roth IRA, stocks and shares ISA, or similar.
• 🤔 Consider the necessity and benefits of university education carefully, as some careers and skills can be acquired through apprenticeships or self-learning.
• 💡 Avoid bad debt like consumer debt, which does not contribute to wealth creation, and focus on leveraging good debt for investments that appreciate in value.

Q & A

What is the main purpose of the video?

The main purpose of the video is to guide young individuals on how to become financially ahead by following specific steps at various ages from 13 to 18, and to serve as a checklist for older individuals to ensure they are on track.

Why is time in the market considered the most important factor for investing at a young age?

Time in the market is crucial because it allows the investment to grow rapidly over time, similar to a snowball rolling down a hill, due to the power of compound interest.

What is a custodial account and why is it beneficial for young investors?

A custodial account is an investment account controlled by an adult for the benefit of a minor, typically a family member. It is beneficial because it allows young investors to start investing before they reach the legal age to invest on their own.

What is the historical average yearly return of the S&P 500 index fund mentioned in the video?

The historical average yearly return of the S&P 500 index fund is 12.58% over the last 10 years, as of the end of May 2024.

Why should a 14-year-old explore different ways to make money?

A 14-year-old should explore different ways to make money because they have the freedom to try various activities without the pressure of needing a reliable income every month, which can help them discover their talents and interests.

What is the significance of asking for cash as gifts instead of material presents at age 15?

Asking for cash as gifts allows the teenager to start saving money and avoid accumulating items that may lose their value or interest over time.

Why is it important for a 16-year-old to focus on developing specific skills?

Focusing on specific skills at age 16 is important because it helps the individual stack their skills and build a foundation for their future career, making them more valuable in the job market.

Why should a 17-year-old pass their driving test even if they don't need to drive immediately?

Passing the driving test at 17 is beneficial because it removes a potential barrier to starting a side hustle or taking advantage of job opportunities that may require transportation.

What are the seven financial steps recommended for someone turning 18 in the video?

The seven steps are: 1) Open your own bank accounts, 2) Get a credit card, 3) Open and invest in an account like a Roth IRA or stocks and shares ISA, 4) Carefully consider university, 5) Avoid bad debt, 6) Start a side hustle, and 7) Invest for the long term.

How does the video suggest using a credit card to build a credit score?

The video suggests using a credit card to pay for everyday expenses that would normally be paid for in cash, and then paying off the card in full every month to avoid interest and build a good credit score.

What is the potential long-term benefit of investing a small amount monthly starting at age 18?

Investing a small amount monthly starting at age 18 can lead to a significant accumulation of wealth by the age of 65 due to the power of compound interest, potentially reaching around $1.5 million tax-free, assuming an average yearly return of 8%.

Why should a young person avoid consumer debt according to the video?

The video advises avoiding consumer debt because it is a type of debt that does not create wealth and can trap individuals in a cycle of financial strain, such as financing a car that does not appreciate in value.

What is the video's stance on university education for all teenagers?

The video suggests that university education is not necessary for all teenagers and should be considered based on the career path and whether the degree directly opens up job opportunities.

How does the video define a 'side hustle' and why is it recommended for individuals at age 18?

A 'side hustle' is a part-time business or job that one does in addition to their regular job. It is recommended because it allows individuals to leverage their skills and potentially earn extra income, contributing to their financial growth.

What is the significance of opening a high-interest savings account according to the video?

Opening a high-interest savings account is significant as it allows individuals to start building an emergency fund, which is crucial for financial stability in case of unexpected events that may affect their income.