It can be scary to make your first investment. But the potential results of making the leap early can help outweigh those fears.
As educators dedicated to equipping the next generation with essential life skills, you understand the importance of financial literacy. One of the most valuable lessons you can impart to your students is the significance of investing early. Time is a precious asset in the world of finance, and by starting early, young investors can harness its power to build substantial wealth over time.
To drive home this point, let's take a look at an investment in the S&P 500, one of the most popular indices for beginning investors. Purchasing an S&P index fund provides you with an investment in the 500 largest corporations in the U.S. and represents about 75% of the total value of the U.S. economy. Let's look at two examples to demonstrate the value of starting early:
- Jane starts investing her summer earnings of $1,000 in an S&P 500 fund when she's 18. At the age of 48 (using the past 30 years as a proxy), her investment would have grown to $16,600
- Bill waits 10 years and makes his investment of $1,000 in the same fund at the age of 28. At the age of 48 (using the past 20 years a proxy), his investment would be worth $6,000.
A few points worth highlighting here:
- That extra 10 years of compounding means Jane's investment is worth $10,000 more than Bill's investment.
- Each of them earn a multiple of their original investment: Jane made almost 17X and Bill earned 6X so investing in diversified, low-cost index funds has historically been a great way to build wealth
- This is a simple example with just a $1,000 investment but would create even greater wealth as investments continue to made over time.
So, why should high school students begin their investment journey as soon as it's financially reasonable? Let's delve into the compelling reasons:
Compound Growth Magic: The earlier you invest, the longer your money has to compound. Compound growth is theconcept where the initial investment grows (either through dividends, interest, or capital gains) each year. Over time, this can snowball into substantial gains. Starting early gives investments more time to grow, multiplying your initial contribution.
Risk Tolerance and Learning Opportunity: Investing early allows young individuals to become comfortable with risk. They have time to weather market fluctuations and learn from their experiences. This hands-on learning can be invaluable in building financial resilience.
Financial Goals and Dreams: Encouraging students to invest early helps them align their financial goals with their dreams. Whether it's saving for a college education, a dream vacation, or retirement, investing provides a practical means to achieve these aspirations.
Long-Term Wealth Building: Investing isn't a get-rich-quick scheme. It's a long-term strategy for building wealth. Starting early sets the stage for a lifetime of financial security and opportunities. It can make the difference between a comfortable retirement and financial struggle in old age.
Less Pressure on Income: Young investors often have limited income compared to later stages in life. By starting early, they can take advantage of the power of compounding to grow their wealth without relying solely on high incomes.
Embracing a Saving and Investing Mindset: Early investment instills a culture of financial responsibility. Students who start investing young are more likely to continue saving and investing throughout their lives.
Now, as personal finance teachers, you play a pivotal role in shaping the financial futures of your students. Here are some strategies to convey the importance of early investing effectively:
Educate with Real-Life Examples: Use real-world examples like the Netflix investment to illustrate the impact of starting early. These stories resonate with students and make financial concepts relatable. Also be sure that they understand that there's greater risk investing in individual stocks, that only about 4% of companies have generated most of the stock market wealth and by owning an index fund they will capture the growth from stocks that have the highest returns.
Simulate Investment Scenarios: Implement investment simulations or games in your classroom or an S&P 500 calculator helps students see the value of investing for the long-run. This hands-on approach allows students to experiment with investing in a risk-free environment and learn from their successes and failures.
Guest Speakers and Field Trips: Invite financial experts into the classroom or take students on field trips to financial institutions. These experiences can demystify the world of finance and inspire young minds.
Leverage Technology: Incorporate investment apps and online tools that allow students to track hypothetical investments. These tools can make learning about investing interactive and engaging.
Encourage Questions: Foster a classroom environment where students feel comfortable asking questions about investing. Open discussions can help demystify complex financial topics.
Highlight Diverse Investment Options: Introduce students to a variety of investment vehicles, from stocks and bonds to mutual funds and real estate. Diversification is a key strategy in wealth building.
Set Financial Goals: Encourage students to set realistic financial goals and create investment plans to achieve them. This process can instill discipline and purpose in their investing journey.
As the earlier example demonstrates, the power of starting early is greater wealth creation. So, let's encourage our students to start investing as soon as it's financially reasonable, because in the world of finance, time truly is money.
Check out NGPF's lessons and activities in the Investing unit. And if you need to brush up on your own investing knowledge so you feel comfortable teaching your students, check out our Investing for Beginners On-Demand module.
Happy teaching, and here's to a brighter financial future for our students!
About the Author
Ryan Wood
Ryan grew up with and maintains a love for learning. He graduated from the University of Wisconsin-Green Bay with a degree in Business Administration and worked in sports marketing for a number of years. After living in Texas, Colorado, Tennessee, and Minnesota, the call of education eventually brought Ryan back to his home state of Wisconsin where he was a Business and Marketing teacher for three years. In his free time he likes to spend time with his wife and daughter, play basketball, read, and go fishing. Now with NGPF, Ryan is excited to help teachers lead the most important course their students will ever take.
