When you send your child off to school, they're exposed to a wide, wonderful spectrum of knowledge: the arts, sciences, history, language … and if they're lucky, matball. A fortunate number might also learn a thing or two about investing as part of a personal finance course. But the odds are still heavily against it – and it's up to parents to help bridge this key knowledge gap and teach their kids about investing.
Investing marked "absent" from most schools
Fewer than a quarter of American high school students will take a personal finance course this year, says financial-curriculum advocate Next Gen Personal Finance in its 2023 State of Financial Education Report. It's a meaningful improvement from 2022's 20.6%, as more states adopt personal finance classes as part of their graduation requirements … but most teens remain in the dark.
This lack of formal financial education shows up most on the investment front.
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Consider a few of these findings from Fidelity's 2022 Teens and Money Study, which polled 13- to 17-year-olds about "teens' attitudes and behaviors when it comes to managing their finances, and more specifically investing":
- 50% of teens have used a payment app
- 49% of teens have opened a bank account
- 39% of teens have gotten a job
However, just 20% of teens have started investing, with 72% of those polled saying they have "no" knowledge of trading stocks and ETFs.
That's a glaring deficiency in what is one of the most consequential financial competencies.
"The most common pathway to building wealth in America is through investing in the stock market, and it doesn't happen overnight," says Riley Adams, a licensed CPA and publisher of family financial education site Young and the Invested. "Instead, it comes from decades of consistent investing and remaining in the market."
Why are children so under-educated about investing? Well, in addition to the lack of formal schooling on the subject, teens might not be receiving much instruction at home, either. Fewer than six in 10 Americans own stock – and many who do might not feel they're equipped to teach their children about investing, or perhaps don't even feel like their kids need to learn or open an investment account until they're much older.
Au contraire. Reasons abound to start as soon as you're done with this article.
Why parents should teach their kids investing
Let's consider a few prime reasons that parents should take an active interest in their kids' financial educations:
- The power of compounding: Compounding is an investor's most powerful ally – and the younger you are, the harder it works. Consider this: If your child or teen has just $500 invested by the time they're 18, that money – given 10% average annual returns – would swell into a sum of roughly $44,000 by the time they turned 65. That same $500, left to grow at the same rate beginning at age 29 (the average age Americans start investing), would amount to just about $15,500 by retirement. That doesn't even begin to consider the additional edge over the average a teen would gain by saving more than $500 before age 18, or continuing to invest over the years until they reached 29.
- More time to learn, recover from mistakes: Starting young also gives your child more than a decade's worth of experience compared to when the average American begins to invest. That's a decade that can be spent not just learning best practices, research and investing techniques, but also developing the emotional intelligence it takes to remain calm and make rational decisions during difficult times for the market.
- A safety net for America's safety net: No Social Security doomsaying here; just facts. The latest report from the Social Security Board of Trustees projects the Old-Age and Survivors Insurance (OASI) Trust Fund – which pays the monthly benefits to retired beneficiaries and their families – will be depleted by 2033, at which point income would only be enough to pay out 77% of scheduled benefits. While a fix might be implemented before then, it might not – meaning Americans will have to rely more than ever on their own savings and investments to fund their necessities during retirement. Said plainly: Those with an early start might have a better chance of overcoming a potential Social Security shortfall.
One final benefit to teaching your kids about investing: It places them on a more certain path – one where they're likelier to end up more financially independent.
"You won't have to be your children's goal-line defense forever," Adams says. "They'll be able to fend for themselves."
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