Editor’s note: This article was sponsored by the Washington College Savings Plans (WA529).
Lots of kids want to help save money for college. But most schools don’t teach financial literacy, so teens — and often their parents — don’t always know the best way to do it. Some teens are taking it upon themselves to learn how money works and to set themselves up for the future — and they’re pretty sophisticated about it.
In the past, investing seemed like something reserved for the wealthy — too risky and complicated for middle- and working-class parents, let alone their children. Simply saving money for college was challenging enough. But ever since the 2008 financial crisis, a simple savings account has been a poor choice, with interest rates rarely exceeding inflation. Fortunately, new financial and technological tools have made it easier for parents and their teens to learn to invest in support of their long-term goals. Learning about budgets and compound interest is a great start, but today’s teens have a lot of options, from the guaranteed returns of certificates of deposit (CD) through speculative investments like bitcoin.
“I think it’s good to get experience with money and investing at a young age, because it is something that can, you know, set you up for the future,” says Ishe Chikwinye, a senior at Curtis High School in University Place who has been investing in stocks for two years. Chikwinye works part-time as a lifeguard and does odd jobs for his grandfather, who is an avid investor. After Chikwinye reached out to him for investing advice, he opened a dedicated brokerage account where he deposits Chikwinye’s odd job earnings.
“I’m allowed to make the picks, and he’ll advise me. He sends me articles and kind of guides me through it,” says Chikwinye.
Teenagers cannot open their own brokerage accounts, so investing requires an adult mentor to open a custodial account for them. Some brokerages, like Fidelity, offer youth accounts specifically designed for teens that feature educational resources. If the teen has a job, they may be qualified for a custodial Roth IRA. Autosaving apps like Acorns or Chime enable micro-investing when teens have only small amounts to save.
Risk and return
“Crypto, that’s the new craze now and really, there’s not much basis to it. I think crypto is gambling,” warns Chikwinye. He prefers his mentor’s more conservative approach of choosing stocks based on credibility and a history of consistent returns. He favors so-called “safety companies” that provide critical products like electricity.
“We talked about making money for the long-term. I’m not going to have this money or touch this money for a long time. You’re setting yourself up for the future so you want to buy into things that are going to have payouts. Certain stocks will pay out what are called dividends. They’ll give you a portion of your investment back every dividend period,” he explains.
“I think there’s risk with everything you do,” says Chikwinye. “Safety companies don’t present the same high risks as strategies as day trading, but they can lose value, too. Certificate of deposits are very safe. The bank is pretty much required to pay. You know you’re going to get your payout. But their payout is usually lower,” he says.
But for teens who can’t afford to lose money, the “lost opportunity” risk is negligible compared to the ability to make plans based on a guaranteed return. For these teens, CDs and government-backed investments like U.S. Savings Bonds are a good choice.
WA529
An often-overlooked investment opportunity in this safest category of investments is a Washington Education Savings Plan (WA529). The state’s original 529, the GET Prepaid Tuition Plan, comes with a guarantee from the State of Washington. With GET, you purchase “tuition units” that your student can eventually redeem for education expenses. No matter how much tuition has risen since the initial enrollment period, 100 GET units will always be equal to the cost of one year of resident undergraduate tuition at Washington’s most expensive public college (currently the University of Washington).
“Now is a great time to open and contribute to a GET Prepaid Tuition account. You can buy units today at $123.76, while the current unit payout value is $127.85. This gives your savings a head start while also providing the peace of mind that comes with paying for future education in advance,” says Lynda Ridgeway, director of Washington Education Savings Plans.
For students who are interested in more traditional investing, WA529 Invest (formerly called DreamAhead) offers a variety of fund options that you can manage yourself while still benefiting from the tax advantages of a 529 plan.
For teens wanting to learn firsthand about investing and compound interest, WA529 Invest is structured a lot like other investments. You contribute after-tax dollars, which are invested in a fund or a combination of funds that you choose based on your risk tolerance.
No matter what type of 529 plan you choose, in addition to tuition and fees, the funds saved can also be used for books, supplies, computers, room & board, and a long list of other eligible expenses at practically any college, university, or technical school in the U.S. and many countries worldwide. Besides university-related expenses, 529 funds can pay for apprenticeships, certificate programs, and industry and professional licenses. With some limitations, unused 529 funds can even be rolled into a Roth IRA.
Like brokerage accounts, an adult is required to open a 529 account on behalf of a minor. But anyone - friends, family, or the student themselves – can make contributions to a student's fund at any time.
Practice
Research and practice are as important to learning how to invest as they are to any other academic skill. Chikwinye began investing with paper trading, which is basically fantasy football for finance. There are several paper trading apps available for both Apple and Android, with Webull and MooMoo commonly cited as beginner-friendly options. Many brokerages with online trading platforms also offer simulated trading.
“Truly, if you want to get into it, it takes a level of drive. Have the motivation to research,” says Chikwinye. Although the time commitment fluctuates depending on school and work pressures, he usually spends nearly an hour a day studying stock prices and often spends hours at a time on deeper research.
Chikwinye is lucky to have a knowledgeable family member as a mentor, but even if you are not a money-minded family, you can help your teen learn about investing by directing them to financial literacy resources. Make sure to provide some media literacy guidance before they launch into online self-study; the internet is thick with bad financial advice. “Credible news websites will give you articles that will tell you why [a stock] is down today, or this is what it’s doing, or this is what we think is going to do. And you’ll learn some terminology,” says Chikwinye. But he warns, “Stay away from gurus on Instagram or really on any website. I think building money takes time, and if somebody tells you otherwise, then [I think] they’re lying to you,” says Chikwinye.
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