Shelby: If someone gave you money today, what would you do?
Teen: I’d put it in the bank.
Kelly Toro: I’d open a bank account.
Shelby: Do you invest your money?
Teen: Not yet.
Shelby: Is that something you want to do someday?
Shelby: Like most students, these teens say that learning about money management, including saving, budgeting and investing, is one of their top priorities. And that is why they are here at Junior Achievement in New York City.
Kelly: They’ve always told us to not waste your money. You want to do something with it. Do something valuable with it. So that’s always been in my head.
Shelby: But a majority of teens do not get this kind of financial education, which means they might be missing key opportunities to get ahead.
The ways of Wall Street can seem confusing, which is why about one-third of teenagers lack confidence in their ability to invest. But getting an early start can bring big benefits. Young investors contribute less and make more than older investors. How is that possible? It is all about the power of compounding.
Joseph Peri: Let’s say you have $100 to invest and you can get a 5% return on that. After the first year, you now have $105. The second year, you are not just getting 5% on your $100, but you’re getting 5% on $105. And over time, that has a real compounding and multiplier effect.
Shelby: In fact, if you left that $100 sitting in an account that earned 5% interest every year and you never added anything to it, you would have almost $2,000 in sixty years!
Kelly: You always want your money to grow. You don’t want it to just stay there.
Shelby: Junior Achievement says it is an important concept for teens to learn, especially because young people are being asked to save and pay more for their education.
Are you worried about paying for college?
Teen: Yes, very.
Kelly: I don’t want to have the rest of my life paying for my college loans.
Shelby: What advice do you have for young people who want to start investing?
Peri: I think probably the biggest thing to do is for kids not to get paralyzed by that – to do something rather than just nothing.
Shelby: Mr. Peri says you should talk to your parents about saving up, and learn about ways to make your money grow – like by opening a savings account, which has very little risk and allows you to pull your money out at any time. The downside to savings accounts is that the interest rates are pretty low.
You could also put your money in a certificate of deposit. CDs are also considered a safe investment, but you usually have to leave the money alone for a set period of time. The big advantage is that CDs offer greater returns than savings accounts.
Another option is to buy stocks or bonds. Stocks are pieces of a company that get bought and sold on the stock market. And bonds are like I.O.U.s from a company. These are riskier types of investments because the company’s value can go down. But they can also offer a bigger payout if the value goes up.
And finally, you should look into a 529 plan with your parents, which is an investment option to help families save for college.
What are the consequences of not being financially literate?
Peri: You know, financial security is not everything in life, but it certainly makes other aspects of your life easier to deal with. It gives you more flexibility, more choice and more freedom.
Shelby: Shelby Holliday, Channel One News.
- Why do you think it is important to learn about finance at a young age?
- How could a class on financial literacy impact a student’s spending habits later in life?