Teach good money habits — the best investment you can make for your teens

The best place for good financial habits to develop is in the teenage brain. Teens’ neural pathways are still developing, their dopamine systems are still being wired, and, as Unicef points out, their brains are still pliable enough to pick up the behaviours that shape their adulthood.

So, if you’re the parent of a teenager, now’s the perfect time to start a conversation around the good money habits that build long-term financial security. They’ll need some guidance, though – and that’s where parents play such an important role in setting guardrails and teaching a few basic principles.

The first principle is consistency. In the business world, entrepreneurs and employees are taught to “pay themselves first”. The same rule applies to a teen’s pocket money. Pocket money looks different for every teen, depending on their household situation. But regardless of the amount, pocket money can still be a powerful starting point for learning how to save, invest and build confidence with money over time. By setting an amount aside for investment, they’ll learn good habits around saving, patience and delayed gratification.

An investment won’t double your money overnight (no matter what the Finfluencers say), but it will grow over time through the magic of compounding. By the time your 15-year-old turns 25, they’ll have had 10 years’ worth of time in the market, with real results to show for it.

They’ll also have 10 years of market experience, which means they’ll have lived through a few market cycles. They’ll have learnt what a bull market looks like and how it feels when markets dip. They’ll know how to handle market setbacks without panicking or reacting emotionally – and they’ll have learnt from their successes and their mistakes.

They’ll have learnt about risk, too. Some parts of the market may look interesting, but there’s a risk that comes with that. Other parts may be safe and low-risk … but there, the returns aren’t as attractive when investing for the long term. Show them those boundaries, but let them play. After all, that’s how they’re going to learn.

Another important thing that parents can teach their teenage investor is what their investment universe really looks like. Parents could start them off with ETFs, like the Satrix Top 40 or Satrix MSCI World, which provide broad market exposure. Individual stocks may look attractive, especially if they have recognisable brand names, but the market is much bigger than just one or two big companies. Broad market exposure also underscores the importance of diversification, which is fundamental to long-term investing.

Show them what their investment options are and what’s available to them (and what’s not). Talk to them about their financial goals and their time horizon, and help them learn what to expect in terms of returns and timelines.

Set clear expectations

And remember: you’re talking to a teenager. They tend to be pretty direct in telling you what they want and don’t want, so expect a similar conversation when it comes to investing. Set clear expectations up front. If it’s an ETF, they need to know their money won’t double in five days. They may need to wait five years for the compounding to take effect.

That’s the toughest part about talking to teens about investing. As a parent – and as an investment professional like me – you’re competing against TikTokers and influencers who have sharp cameras, bright lights and big promises. That’s exciting. When someone like me comes along, talking about five-year time horizons, it can sound very boring in comparison.

When I speak to my nephew about investing, I try to make things interesting by showing him what he’s investing in and telling him about the underlying assets. If it’s an ETF, I’ll tell him about the individual companies: who they are and what they do. I’ll give him the story behind the stock and the bigger picture around the index that the ETF tracks.

At the start, it’s best to give your teen limited access to their investments. You wouldn’t hand them the car keys while they’re still studying for their learner’s licence. The same principle applies here.

But as they get older and become more experienced, you’ll have to start stepping aside and letting them make their own decisions.

By then, they’ll have learnt how the markets work and what to expect. They’ll understand compounding, diversification and the importance of time in the market. They’ll know what advice to ignore and what to take on board. And, having been a “pre-investor” as a teen, they may have a thing or two to teach you, too. DM