Gen Z is Starting to Invest. Good or bad?

How to safely introduce your teenager to investing while educating and having fun and avoiding financial disaster.

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With the start of the new decade, a new door has opened up not seen before in the history of the stock market. The ability to invest with many different financial vehicles like Fidelity and TD Ameritrade has always been possible and recommended; however, in 2021, investors have more than a dozen tools to choose from. From Robinhood and Webull to Public and Acrons, the industry offers many options that all have unique features. One of these many features is the ability for younger customers to invest. Many are teenagers taking their parent’s credit cards and buying stocks and options with no remorse, which, if done incorrectly, could be disastrous for the parents and their adolescent’s lives. Just this month, a 20-year-old Robinhood customer died by suicide after accumulating more than $730,000 in debt by trading and leveraging options.

Robinhood customers often trade fast, particularly volatile stocks or options, and can receive significant gains or even more considerable losses. Any time there is high risk involved, the rewards or the losses are that much greater. Many follow and make trades based on Reddit posts, Discord servers, or even Twitter posts, which can be super dangerous when this advice is being delt by other teenagers and other inexperienced investors. This is why it’s essential to teach the younger generations about investing and money sooner.

Psychological Dangers of Investing.

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Learning about financial risk can be challenging for teenagers whose families have never experienced economic hardship. Nevertheless, it’s a crucial lesson. Before anyone should invest, it is crucial to learn about compound investing and why investing early can help build interest. Most nonchalant investors can beat seasoned professionals just by holding and hanging tight for a half-century. However, watching your money fall when the market crashes and rise exponentially when it rises can be exhilarating and stressful. This is why it’s important to understand volatility and what that means in the stock market. The psychological factor of keeping money in the stock market, is in itself, the big problem maker when it comes to investing. Many investors end up making mistakes with their money when they decide to pull out or to sell right before the market shoots up, all because they were scared.

Once teenagers and other inexperienced investors understand these important lessons, they will have a much better time in the market. With careful research and planning, they will begin to make correct choices with their trades and make money in the stock market.

Make a Plan.

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Another reason that investing as an adolescent is a good idea is that it teaches them about money. By the time one becomes a teenager, one should already understand the concept of spending and saving. With proper limits set by parents, teenagers can learn about investing and also have fun while learning.

• Open a Long-Term Account

A long-term Roth IRA account can be opened for safe investments once the teenager turns 18 (If the teenager is under 18, a custodial account or an account under the parent’s name will serve well). This would be the account that they would add Vanguard or another safe mutual fund or ETF and hold for decades. Then, once the teenager gets a job, they can slowly add a percentage of their monthly wages into the account and witness the compound interest do its magic.

• Open a “Fun” Account

If the teenager is interested in investing, a guardian could gift him/her some money to play around with. Anywhere from $100-$1000 would suffice and let the teenager learn through trial and error independently. Set limits on gains, so when a stock reaches a specific price, it will automatically sell. When one wins in the stock market, they feel unstoppable, and teenagers and other inexperienced investors might not know when to sell. They might think that everything is going super well, and then the next significant correction or crash wipes out everything they made. Another excellent idea is to have the teenager pitch to you why they want to buy each specific stock or fund. This forces them to research and analyze instead of just blindly guessing which ones are winners.

Using these essential steps, parents can safely and effectively teach their children how to properly invest without heartbreak or significant losses.