A recent survey by PNC Investments found that while many millennials had grown up understanding the value of saving, far fewer were comfortable making the leap to investing. As a result, many held their money in checking, savings, money markets or CDs, rather than investment vehicles that were likely to produce a higher rate of return. This was particularly true of young women, compared to young men.
The PNC Investments survey results also demonstrated that those who did invest, perhaps in an employer-sponsored retirement plan or an IRA, were likely to look to their immediate family members for advice.
That means, whether your child is just starting junior high school or heading into the workforce, you have a remarkable opportunity to help them establish good investing habits early.
Why an "Investing" Mindset Matters
The younger a person is when they start investing, the greater the benefits. Here's why:
- Because a young investor won't need to access retirement funds for a long time, they can be comfortable taking on more risk with the potential to earn greater returns over time.
- The power of compounding over many decades can allow even small investments made today to positively impact future balances.
In recent years, traditional savings vehicles have been offering very low interest rates. For example, savings accounts in the US have been averaging well below 1% interest.
On the other hand, S&P 500 index funds (mutual funds tied to the stocks of the 500 largest companies in the U.S.) had a year-to-date return of about 14.71% as of August 22, 2023.
The power of compounding over many decades can allow even small investments made today to positively impact future balances.
How to Get Started
Investing can sound intimidating, even to adults. But you don't have to be an expert in the stock market to instill positive investing habits in a child or grandchild. Here are a few approaches to consider:
1. Build a relationship with a professional. You may be surprised to hear that you don't need a lot of money to invest in order to work with a professional. For example, PNC Investments professionals are happy to provide guidance to investors at every level. Your family's advisor can help a young investor:
- Think about short and long-term goals
- See how their decisions today can make a difference in their future
- Understand that risk isn't necessarily something to fear
2. Invest with, not just for, the child. Don't just give a child money, give them knowledge. This isn't something they'll learn at school. Parents have to teach them. When they are young, have them open a savings account. As that account grows consider opening an investment account on their behalf. Later, when they have a summer job, look into opening an IRA.
3. Start carving out a set percentage early. As soon as a child begins getting an allowance, bringing in babysitting money or earning from a part-time job, set aside money to save, money to spend and money to share with those in need. Apply these parameters to gifts, too. This attitude will stay with them throughout their lives, instead of trying to adopt this attitude once they start their first “real” job.
4. Make it fun. Be sure to create both short-term and long-term goals. A 14-year-old isn’t thinking about how they'll spend retirement (or even where they'll go to college), so make sure their plans include relevance for today. Consider investing small amounts for them in some of their favorite companies, like Disney or Apple, so they can watch what happens. While stock picking may not be a great strategy for many investors, it can be a great educational tool for a small portion of your family’s investments.
If you're ready to begin investing with your child or grandchild, reach out to PNC Investments today at 855-PNC-INVEST. Not only can we help make the process easier to understand, we can help them get excited about the future.