Brief Summary
This video provides a comprehensive guide for teenagers and young adults on how to achieve financial success by outlining key steps to take at different ages, from 13 to 18 and beyond. It emphasizes the importance of starting early with investing, developing valuable skills, avoiding bad debt, and leveraging opportunities to build wealth.
- Start investing early to maximize the power of compound interest.
- Develop a diverse set of skills to increase your value in the job market.
- Avoid consumer debt and focus on investments that generate wealth.
How To Invest As A Teenager
The video introduces a roadmap for teenagers to get financially ahead by detailing specific actions to take at ages 13 through 18. It stresses that even those older than 18 can use this as a checklist to ensure they are on the right track. The guide aims to help viewers surpass their peers financially by implementing the advice provided.
AGE 13 - Open An Investing Account
At age 13, the most crucial factor in investing is time in the market, which means starting to invest money as early as possible to allow it to grow. Since individuals under 18 cannot invest independently, they need a parent or guardian to open a custodial account. In the UK, this is known as a junior stocks and shares ISA, allowing investments of up to £9,000 a year. A simple, low-cost S&P 500 Index Fund is recommended for investment, offering exposure to the 500 largest US companies with a historical average yearly return of 12.58%. In the US, options include UGMA and UTMA accounts, with no contribution limits but potential gift tax implications for contributions over $18,000 per year. Vanguard is highlighted as a preferred brokerage for its low fees and long-standing reputation.
AGE 14 - Find Your Talent
At 14, with fewer financial responsibilities like rent, teenagers have the freedom to explore various ways to make money and discover their talents. Trying different activities, from pressure washing driveways to competitive sports, can teach valuable skills. Discipline, as learned through activities like early morning swimming practice, can be beneficial when starting a business later in life. It's important to try a wide range of hobbies to identify natural talents and then focus on becoming one of the best in that area.
AGE 15 - Stash Your Money
Instead of asking for presents like video games, teenagers should request cash for birthdays and holidays. Getting a Saturday job, even in retail, can provide extra income and teach social skills. The focus should be on stashing away this money rather than saving it for immediate spending on items like game consoles. The stash should be viewed as a Launchpad for future investments. Applying for a provisional driving license is also recommended at this age (15 years and 9 months in the UK).
AGE 16 - Hone Your Skills
At 16, with two years before entering the real world, it's time to focus on developing specific skills. By this age, one should have an idea of their strengths and start stacking related skills. Investing in equipment, like a computer for video editing or graphic design, can open doors to new opportunities. The goal is to develop skills that offer value to potential employers, reducing the amount of training needed and increasing employability.
AGE 17 - Pass Your Driving Test
Passing the driving test at 17 is crucial for future opportunities, even if driving isn't immediately necessary. The ability to drive removes a significant barrier to starting a side hustle or taking on clients who live further away. Being able to drive ensures reliability and professionalism, preventing missed opportunities due to transportation issues. Using stashed money to buy a cheap starter car can further enhance independence and opportunities.
AGE 18+
Turning 18 marks the beginning of adulthood and opens up numerous opportunities to get financially ahead. The video provides a checklist of seven essential steps to set up for success, emphasizing that it's never too late to implement these strategies.
Step One - Open A Bank Account
The first step is to open two personal bank accounts: a current (checking) account for daily transactions and a high-yield savings account for building an emergency fund of 3-6 months' worth of living expenses. It's recommended to use banks with minimal fees and strong online banking services. In the UK, Monzo is recommended for the current account, and Chase for the savings account due to its high interest rate. In the USA, Allied Bank or Bank of America are suggested for their low fees and robust online services.
Step Two - Get A Credit Card
Obtaining a credit card at 18 is a great tool for building a credit score. Using the credit card for regular purchases and paying it off in full each month builds credit without incurring interest charges. A good credit score is essential for securing loans and mortgages at favorable interest rates. The video challenges the notion that all debt is bad, highlighting that responsible credit card use can be beneficial.
Step Three - Open Adult Investing Account
Opening the correct type of investment account, such as a Roth IRA (USA), stocks and shares ISA (UK), TFSA (Canada), or superannuation (Australia), is crucial for tax advantages. These accounts allow investments to grow without being taxed, although they have contribution limits. Investing apps make it easy to buy fractional shares, allowing small investments in companies like Apple. Trading 212 is recommended for its fractional shares and stocks and shares ISA options, offering a free stock worth up to £100 for new users with the code Tilbury.
Step Four - Consider University
The video questions whether university is always a worthwhile investment. While essential for careers like doctors, nurses, and teachers, it may not be necessary for skill-based trades like plumbing, entrepreneurship, and tech. Practical experience and attitude are often more valued by employers. Apprenticeships are presented as a valuable alternative, offering paid learning opportunities. The video advises against being pressured into university for a degree one is not passionate about, considering the potential debt.
Step Five - Avoid Bad Debt
The video stresses the importance of avoiding consumer debt, which is described as a heavy anchor that slows financial progress. While debt can be used strategically for investments like property or business, financing non-wealth-generating items like cars should be avoided. Consumer debt leads to long-term financial strain.
Step Six - Start A Side Hustle
Instead of solely focusing on getting a traditional job, the video encourages starting a service-based side hustle using valuable skills. Examples include copywriting, video editing, web development, and community management, which require minimal startup costs. A job should be leveraged to gain skills and money to transform it into a Launchpad for greater opportunities.
Step Seven - Long Term Investing
The video highlights the power of compound interest, where earnings generate further earnings over time. Starting to invest early maximizes the benefits of compounding. For example, investing $250 a month from age 18 can result in approximately $1.5 million by age 65, compared to $679,000 if starting at age 28, assuming an average yearly return of 8%. Younger individuals also benefit from lower tax brackets, allowing them to keep more of their earnings.
