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Teaching Teens Investing

Question: Lisa in Charleston has a 13-year-old daughter who started a pet-sitting business a year and a half ago. She’s earned about $12,000 with this business. She has a bank account and saves most of the money. Lisa asks Dave how to best steer her daughter toward investing.

Answer: Did you not hear unemployment was high among teenagers? And she’s making more than most adults. This kid is awesome! Somebody got this one moving. You guys are amazing!

First, there are four things we want to teach a kid. You’ve done great on them. One is work. Obviously, this one knows how to do that. Two is saving. You’ve obviously done that. I want to make sure she’s a giver—that she’s giving. I want to make sure she’s spending on a few things other than horseback riding so that we can teach her wise spending and that you’re involved in the horse decisions too and continuing to parent that. Just because she earned the money, she’s still 13. She still needs parental wisdom.

Having said all of that, where do we invest it? If she’s buying her own car when she’s 16, she doesn’t have very long to hold this money. She’s 13. We’re talking about a couple of years. You really can’t get into mutual funds with the amount that will be spent on the car. That amount will have to be kept in just a money market account. Too much volatility. If she’s got money, which is not that portion of it, that she’s going to leave alone five years or more, get in touch with our Endorsed Local Providers (ELP). They are required to sit with teenagers and single moms who don’t have a lot of money in order to get my endorsement, meaning they’ll teach her. They’ll create basically a mutual funds lesson for her and let her invest maybe $3,000 or $4,000 of this money and learn how a mutual fund works. I’m more concerned about her learning the process than I am the actual interest earned.

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