How To Talk To Your Teen About Investing

In the list of most popular regrets, the “if only my parents had taught me that” one usually ranks pretty high, which is why we’re glad to have found this post titled “How to talk to your teenager about personal finance.” It offers ten steps to help you pass along the basics of investing and saving, so your kid’s better prepared for the decades to come.

1. Open a custodial account using your state’s Uniform Gift to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA).
2. Put some dollars in it.
3. Contribute a certain amount in lieu of gifts.
4. Sit down and explain the basics—you need to understand what a share is, why dividends are paid, what unrealized and realized gains and losses are. If you don’t understand these terms, study.
5. Don’t just buy a “how to” book, though—read about investing, not “how to” invest.
6. Choose investments together; involve them.
7. Go over it every month or quarter or year to review what went right and wrong.
8. If your teen makes some money, ask them to reinvest at least 10% of it, even it’s a single dollar.
9. Teach them not to touch principal.
10. Consider alternative ways of investing.

“how to talk to your teenager about personal finance” [brip blap]
(Photo: Getty)


Edit Your Comment

  1. r4__ says:

    “9. Teach them not to touch principal.”
    This will also keep them from being expelled from high school for assault, btw.

  2. char says:

    Step 0, teach them the value of saving money, and ways to save. After that you can teach them about investing.

  3. misstic says:

    Step 1 – Practice what you preach.

  4. coan_net says:

    Kind of funny – I started to read this thinking, yes – I should do this for my son….. then after reading thought…. well maybe I should do this for myself first….

  5. junkmail says:

    @r4__: ha, damn, beat me to it.

  6. junkmail says:

    @coan_net: agreed.

  7. Myron says:

    Whoever is finding your pictures needs a raise.

  8. SadSam says:

    I would add, if your child earns any money (baby sitting, dog walking, paper route) they can open a Roth IRA – help them do so. Can you imagine how fabulous it would be to start saving for retirement at age 12….

  9. anatak says:

    1-10 are utter crap

    The best way to teach kids about money is to have your own financial act together. Talk about what you’re doing, why, and why not to do some of these dumb things.

  10. catcherintheeye says:

    @SadSam: While I agree this is definitely the fiscally responsible thing to do, what fun is that? I didn’t start saving until 22, but while I certainly missed out on 10 years of Roth IRA returns, I wouldn’t trade it for being able to go out to the movies with friends or buying a fun new video game. Sometimes kids just need to be kids.

    As far as contributing to an IRA for my child (full disclosure: I do not have children), retirement is a personal thing with personal responsibility. I will do my best to ensure an ideal childhood and funding for college, but once it comes to things like retirement, junior is on his own.

    How do others feel about contributing to children’s retirement?

  11. UpsetPanda says:

    I think everything needs balance. A kid who makes $20 mowing the lawn should keep all of it, but should be encouraged to invest it or save it instead of spending it. Most kids can’t see the long-term benefit, they’re so focused on being a child and of course when we’re young, we’re all about immediate gratification. But when a kid can actually see the investment grow, I think they feel more in tune with why they should set money aside. I’m all for parents showing their kids how their money is growing…it encourages independence and gives kids a better sense of money in real dollars and cents, instead of being something that they think is no big deal and will always have.

  12. JBerlinsky says:

    Okay…there are certain steps that need to be taken, granted. However, as a minor (15) myself whom DOES save his money and DOES have financial experience, I will tell you that the UTMA-esque things are a LOAD OF CRAP.

    Let’s say that I, being the (for lack of better terminology) entrepreneur that I am, want to put my money into mutual funds. However, my parents have a prestine credit rating and don’t want that to change, even if that means that I am not getting the best for my money. See the problem here?

    The fact that a parent needs to have their name on the account is a large factor in weather a minor will respect the money as his own or not. Hell, I look at a bank account that has MY name on it and I think “Oh shit…I have $20 in ING…need to fix that.” However, if I look at that same statement, with the exception that it is in my father’s name, I will think “Dad, can you move some more money in please?”

    All in all, a child NEEDS TO KNOW THAT THE MONEY IS HIS in order to learn why investing and saving is a positive. This is equatable to cooking…your average teenager will despise preparing meals for the family, partially because there is always a parent standing over their shoulder. Later in life, generally, that child WILL NEED to cook by him/herself. The child can then either:
    A) Cook a gourmet meal
    B) Cook something edible
    C) Set the house on fire.

    Same with investing. The child, later in life, can either:
    B) Put the money in a 4.0% online savings account
    C) Lose it all (Enron…cough cough)

    These are lessons that MUST be learned on one’s own, not in a UMTA-esque setting.

  13. my neighbors take their kid with them to their investment guy twice a year, after his birthday and after Xmas. He does lots of research into companies he likes (Disney, Nintendo) and decides who he wants to purchase shares in, then he takes his birthday money and buys, like, 7 shares of whatever company. His parents fill out the other 93 to get a round purchase (but the kid doesn’t know that), and the broker keeps the kid’s purchases segregated so he gets statements with his 7 shares of this and 10 shares of that.

    He started doing this when he was 8 or so. He’s about 12 now and has a pretty sophisticated understanding of investing for that age (sells his old toys at garage sales to roll into his birthday/Xmas money investment!) and can read the stock tables in the paper, etc.

    Probably not as money-making as investing in mutual funds for him, but HE learns a lot more that way. I believe his parents’ rounding-out of his purchases will eventually be a gift to him when he launches into the world.

  14. meeroom says:

    JBerlinsky, you are wise beyond your years!

  15. It seems shocking to me that millions or more dollars are spent on educating kids “Don’t Smoke”, “Don’t Drink”, “Don’t go with Strangers”, etc.

    But I have yet to see ONE Public Service Announcement that says “Don’t get a Credit Card unless you can pay off the balance each month.”

  16. morganlh85 says:

    Luckily I went to a middle school that didn’t require our instructors to “teach to the test.” So we got to do a great project in math class where we learned how the stock market works and we chose different stocks and tracked their progress, etc. It was basic, but a lot more than some of my peers can even grasp.

  17. JBerlinsky says:
  18. JBerlinsky says:

    Wow…that comment got screwed up by the filters…I had a whole paragraph or two ;)

    JRB Computer Services

  19. goodkitty says:

    More than anything, make sure your kids are responsible for their financial dealings. Stuff like XBoxes and iPhones need to not just magically appear, they need to be aware of what it takes to earn that and how to be responsible with limited funds so they start reading shelf tags and doing comparison shopping.

    When kids start realizing money doesn’t come out of nowhere for free, maybe we’ll see less sub-prime loans, college credit-card debt, and overall sheep-ism.

  20. bripblap says:

    @misstic: “Practice what you preach.” Yep, I should have made that step 1, 2 AND 3. It hardly matters if you harangue your kids about saving and then go buy a second kitchen blender on a credit card with a balance because your old one isn’t shiny anymore.

  21. bripblap says:

    @JBerlinsky: I agree that ideally accounts should be set up in the minors name, but there are restrictions – I couldn’t really set up a brokerage account for my 4-year old niece, for example. We did spend some time trying to find a brokerage that would let us help my (at the time) 16 year old niece have an account in her name, and couldn’t. She has her own checking and savings accounts, but we did a joint brokerage between her and my wife.

    It’s mainly a question of the laws in that situation. I agree that a responsible 16 year old ought to be able to have their own accounts, though – if you’re responsible enough to pilot a 1000 pound steel box around in public at 55 mph, it’s moronic to say you shouldn’t be allowed to invest in Ford Motor Co. if you want to…

  22. JBerlinsky says:

    @bripblap: Your neice has her own checking account at 16 and you’re in the US? I couldn’t get one…no bank I went to would let me obtain one under 18.

    Laws are meant to be broken sometimes, I guess. There are some laws (HINT HINT, UTMA) that are so ludicrous that they just beg to be broken…not to be a bad influence, but sometimes you just have to flub 1992 into 1929…


  23. bripblap says:

    @JBerlinsky: You just need a co-signer on the account. I don’t think she broke any laws – she has a job and needed a place to deposit checks.

    And the various age limits in the US are odd and arbitrary. Open a brokerage at 16? No. Join the Marines? Sure. Drink a beer? No. Operate a car? Yes. Go figure.