What can we do to inspire others to start learning about investing so they can build wealth and have the freedom to live the life they want?
In investing, time is money, and we want to help younger people use time to their advantage by getting invested early. While you may recognize the importance of having more money later in life, it may not be a priority for younger people who likely have many immediate needs for their money.
Here are some ways that you can bring investing to life for the next generation using real-world examples and giving actual investing experience.
Talk About Your Successes
Personal examples can give someone a concrete understanding of the true payoff of long-term investing, and they’re often missing from conversations about money. Retirees often say that they wish they’d put aside more money for retirement, but we rarely hear people explain exactly how that money could have changed their lives.
When you’re talking with your children or grandchildren, try to share some of the specific ways that your investments have helped in your life. Did your investments help you buy a new house or retire when you were ready? Did they help send a child or grandchild to college or pay for important medical treatments? Maybe you never had to dip into your investment accounts, but it gave you peace of mind to know that the money was always there if you needed it. These stories give a tangible idea of how investing can help people build the life they want to live.
Put Real Money To Work
Most people get serious about investing when there’s real money at stake, so another way you can help younger people get the investing education they’ll need is to open an account with them or for them. If you have the means, you could even offer to match any of their contributions to the account. This can teach the value of saving money and it will help their account grow even faster.
Here are a few possible account choices:
Retirement accounts – Minors who have a legal way to earn money can open an individual retirement account (IRA), and their contributions will be able to grow tax deferred for decades.
IRAs typically don’t interfere with college financial aid, but there are some restrictions. For instance, they’ll pay a penalty if they withdraw funds early (although if they have a Roth IRA, they can withdraw for education expenses without paying a penalty).
Custodial (UTMA) accounts – You could open a custodial or UTMA account (named for the Uniform Transfers to Minors Act) for your kids or grandkids. This is what many FundX clients and subscribers have done over the years. While the assets belong to the minor, you’ll oversee the account until the minor reaches a certain age (often age 18; rules vary per state).
Be aware that there are limits on how much you can contribute (and if you contribute too much, you may face additional taxes), and when it comes time for college, custodial accounts can count against a student’s financial aid.
Regular accounts (with the minor as the beneficiary) – If you want more flexibility, you could open a regular brokerage account and then list your child or grandchild as the beneficiary. You’ll have fewer limitations on how much you can contribute and how you can use the money.
Any of these accounts can be a way to give younger people experience with investing. You can show them how to look up a fund at your broker and how to make a trade. It can also be an opportunity to explain how you make investment decisions. You might set up a regular time to meet each month to check in on the account together and make any changes.
When you’ve been investing for decades, you may have forgotten how daunting it can be to get started and make your first trades. Many of us were lucky enough to have someone in our lives who helped us take those first steps. You can be that person for someone else by sharing your experience and knowledge. We hope this inspires you to set the next generation of investors up for success.
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