Personal Finance

How to put teenagers on the road to wealth

US News & World Report
Brittney Laryea
Robert Ginn | Getty Images

At a time when most kids their age are focused on schoolwork and getting a part-time job, 15-year-old Srijan Sharma and 16-year-old Rohit Roy have been learning the ins and outs of the stock market – and making thousands of dollars in the process.

These two teenage investors (and their parents) shared with MagnifyMoney how they got ahead of their peers by learning about investing. They also share a few tips on how other parents can get their kids curious about investing at an early age.

The summertime day trader. Srijan, a sophomore at Robbinsville High School in Princeton, New Jersey, has always had an entrepreneurial spirit. At age 13, he learned he could earn a profit by purchasing limited edition sneakers online, leveraging social media to find good deals and flipping them for a profit. In 2016 alone, he made about $70,000 in revenue.

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It was a natural transition to investing in the market from investing in sneakers.

"I realized that what I was doing [with my business] was closely tied to the stock market and how the market behaves," Sirjan says.

Over his summer break in 2016, Srijan decided to invest some of his sneaker earnings in the market. He began trading individual stocks on the Robinhood app, a fee-free brokerage service that lets investors trade stocks and exchange-traded funds. He started by investing $1,500 in various companies, including MGT Capital, Facebook (ticker: FB) and Valeant Pharmaceuticals International (VRX). He carefully researched companies before making trades.

"If he has any questions about business or economics at the macro level he can ask my wife or me but outside of that he's on his own," says Sanjay Sharma, Srijan's father, who works in management consulting. Sanjay and his wife, Ritu, who is a certified public accountant, both have degrees in accounting and provide Srijan with insight when they can.

By the time he went back to school in fall 2016, Srijan had grown his initial investment to about $4,500. With school work to focus on, he knew he wouldn't have time to dedicate to active trading so he decided to close his positions and sell his remaining shares, although he kept the funds on his Robinhood account.

The father-son team. New Jersey teen investor, Rohit Roy, 16, says he saved up $2,500 from doing chores at home and babysitting his younger sister. With his father's help, in November he invested his savings in the family's account at a major brokerage firm. The bulk of his investments are in low-cost ETFs but he says he uses about $500 of his savings to invest in individual stocks. So far, he's earned about $300 on his initial investments overall.

Rohit's father, Jay Roy, says he's advised his son to invest for the long term and short term so Rohit can learn to manage risk through diversification.

"At the beginning it was a little bit weird having the extra pressure of 'these are real dollars that you don't want to lose,'" says Rohit. But the teen didn't let the pressure dissuade him from investing. Instead, he became motivated to analyze stocks and learn industry-level concepts such as using multiples to decide if a stock is under- or overvalued.

"It really fundamentally changed the way I looked at the stock market rather than just looking at it generally. I learned to really research the companies that I want to invest in," Rohit says.

How to get your child interested in investing

Only 17 states require high schoolers to take a personal finance course in order to graduate. Even then, those classes rarely cover the complicated ins and outs of investing.

Here are some tips parents can use to get their kids interested in investing at an early age.

Use real financial examples from your family's life. Jay Roy, Rohit's father, says he started teaching his son about finances at an early age by involving him the family's household finances.

"I showed him our bank account statements to explain how banking works," says Jay, who is vice president of information technology at HSBC Bank. "The earlier they start, the better. It doesn't have to be stocks. Maybe they can put [their savings] in a CD and let it gain interest."

One of their earliest lessons was on the concept of compounding interest, the secret sauce of how money grows over time. Eventually, they worked their way up to studying the family's mortgage statements and discussing the importance of saving an emergency fund, eventually, investing through brokerage accounts.

Getting parents and kids engaged in financial discussions is key, says Aaron Greberman, who teaches personal finance and International Baccalaureate business management at Bodine High School for International Affairs in Philadelphia. The school serves a majority of students who come from low-income families. To get the kids' parents involved, he often tells his students to explain the day's lesson to their parents at home for homework.

"Just the idea of building wealth over time is a difficult concept for [our students] to grasp," Greberman says. "They definitely do not have a sense of investing."

Teach through brands they know. Talking about companies kids will recognize is a great way to teach how stock ownership operates.

"You want to talk about something that's relevant to them," says Melanie Mortimer, president of the the Securities Industry and Financial Markets Association Foundation. SIFMA operates a free stock market game that anyone can play online.

"You can capture their minds and interest by talking about something that's relevant to them. Show them a company's ticker symbol, walk them through how Apple (AAPL) went to market," says Mortimer.

Jay says he started teaching Rohit using a similar tactic when his son was about 12 or 13.

"Millennials know Facebook, Twitter (TWTR), Tesla (TSLA), Apple — all of these technology companies. So I told him he could actually own a piece of Apple if he buys their stock," says Jay. He says the tactic gave him an opportunity to teach Rohit how companies like Apple make money when consumers buy an iPhone, MacBook, or another Apple product.

Peer pressure (kind of) works. Teens tend to copy the latest trend or whatever their peers are into, so it's easy to conclude that one child's interest in the stock market could spread to their peers.

Srijan has become something of a trendsetter among his classmates in his business class.

"I sort of explained to them what I do and how I trade and my reasoning for the trades I make," Srijan says. "I tried to wipe their confusion away and explain to them how the stock market works. After I explained it, they really kind of took it on themselves."

Rohit introduced his school's stock exchange club to the Knowledge@Wharton High School Investing Competition last year. This year, Rohit was elected the Ridge High School stock exchange club's president. He said it's a challenge to get some of his peers to step out of their comfort zone and get real-world experience in the market.

"I've tried to push [my friends] to invest in the stock market, and they always talk about how they are so busy," he says of his fellow students who also balance school, part-time jobs, and extracurriculars.

Rohit says busyness isn't a good excuse not to learn about financial management and urges high schoolers to gain "that awareness that you're going to become an adult."

Practice with fake money first. Nothing is better than the real deal, with a virtual fund of course. Stock market simulation games and competitions such as those offered by SIFMA, MarketWatch, and Knowledge@Wharton High School are great ways to get teens practice trading.

The games operate like the real market in every way. The only thing that's fake is the money.

Rohit and Srijan both practiced with virtual trading before they put their real money in the stock market.

Srijan's interest in stocks was ignited by an introductory business class he took during the first half of his freshman year. In the latter half of the year, Srijan joined his school's investment club and competed in the Knowledge@Wharton High School Investing Competition.

During the annual international competition, thousands of teens internationally compete in teams to win over a brokerage contract with a rich young businessman. As part of the competition each team is given a virtual $100,000 to trade in a stock market simulation. When the school year ended, Srijan tried his hand at short-term trading with part of the profits from his business.

"I thought, this is pretty cool just to get me exposed without risking my real money," says Srijan.

The teen says he thinks it's important for kids to have exposure to virtual trading so that if they become more interested in it, they can learn more about investing overall.

Open a Roth IRA with your child's first job. Celebrate your child's joining the workforce with a custodial individual retirement account. You can use the retirement account as an alternative to a 529 college savings account. The accounts are in the child's name, but an adult, usually a parent or grandparent, controls it. When your kids turns 18, they assume control of the account.

You'll be congratulating them on their step toward adulthood with another step in the right direction, and they will begin setting aside money for the future. To top that, you get to teach them about the market.

Sanjay says to encourage your child to research the companies and funds that have their savings tied up and let them ease into investing with smaller contributions. You can even agree to match your child's contribution to their IRA account to encourage them to save more money.