Teenagers have many things to think about. And in this day and age, in times of sky-high house deposits and eye-watering tuition fees, money is more of an issue than ever.
How to Invest as a Teenager in the UK
But whatever’s on your mind, one of the greatest assets you have when it comes to money is time.
Yup, you have a whole lot of time ahead of you and that is one of the key factors in your favour if you want to start investing.
Taking the time to learn about investment accounts, stocks and shares or index funds must come pretty low on any teens list of priorities. But putting even a small amount away could pave the way to a bright financial future.
An Interesting Story About Benjamin Franklin
Here is an interesting tale to illustrate the power that having lots of time at your disposal can have on your finances. In his will, the famous President of the US, Benjamin Franklin left £2,000 Sterling to be split between the cities of Boston and Philadelphia. But with one stipulation. That the money could not be accessed for 200 years. He died in 1790 and true to his word, the money was not touched until 1990 when it had grown to $6.5 million. The full story is here.
Investing and the Stock Market
Getting a grip on your finances early in life doesn’t have to involve studying the financial times or stressing over the stock market. But even going to the bother of investing a few pounds a month at this early stage in life could give you valuable insight into the power of investing and the stock market.
And in this internet age, it’s easier than ever to find out the information you need to get started and to open a plan that is right for you.
Firstly it is important to distinguish the differences between saving and investing.
A savings account works much in the same way your average bank account works in that your money accrues interest. However, you may have noticed that interest rates are very low.
Or you may not have.
Low Interest Rates
As interest rates in the UK and US have been at historically low levels since the global crash of 2008. If you are indeed a teenager, then you won’t remember that far back. Or at least you certainly won’t have been following interest rates.
At the time of writing, the US Federal Reserve’s most recent interest rate shift came in October 2019 when it was lowered to 1.5%.
Although it is not as low as it has been, it is still historically very low which is bad for savers.
Historically, the US is a great place to look to if you want to predict how UK interest rates will go.
Generally speaking, the UK follows the pattern of the US financially, and this may be even more pertinent in the wake of Brexit.
But what options are available to you? And how would you even get started?
I am going to talk about two products that I am most familiar with. ISAs and Junior ISAs.
Junior ISA (Stocks and Shares)
Many teenagers may already have a Junior ISA. It’s not something they can open themselves. It’s something only a parent or legal guardian is allowed to open. They can be started from birth and can be opened until the child is 18.
However, the child (or teenager) can manage the account from when they are 16 years old.
So, check with a parent and if you already have a JISA in your name, this could be a great place to start a lifetime of investing.
As mentioned – when the child is 16, they can manage the account. You could start from £10 per month, or if this is too much, maybe you could arrange with a parent to put in what you could afford. The fun part could be logging into your account and seeing how your plan has grown since it was started and seeing the effect of your contributions.
Stocks and Shares ISA (Investment ISA)
The JISA’s big brother is the ISA. (By the way, ISA stands for Individual Savings Account). And you can open an ISA from the age of 18.
Again this works in a very similar way to the Junior ISA being, effectively, a tax-free ‘wrapper’. One of the main differences is the annual investment limit is £20,000 whereas the JISA limit is £4,368.
Whatever way you decide to go, remember that time is on your side and starting with just a small amount could be a wise move.
It’s also advisable to stay away from credit cards. No matter how appealing the introductory rate seems.
Try using this calculator to see the effect that investment growth can have on a long term investment plan such as a Junior ISA.