Your teen may believe that he or she doesn't have enough money to invest. If so, explain that it's not just about how much you invest, but about how much time you have to invest it.

The more time you have, the more you can benefit from compound growth. Consider this example: if you put away $25 a month for 10 years and never invested it or earned any interest on it, you'd have $3,000 after 10 years. But if you invested that same $25 a month for 10 years and you earned 8% each year on your investment, you would end up with more than $4,500*. In other words, you'd have 50% more.

The chart below shows another example of how compounding can have a snowball effect as the original investments, and the income earned from those investments, grow together over time.

 

As you can see, Investor 1, who only invested for 10 years (but who started at age 18) outearned Investor 2 who invested for 25 years. Of course, Investor 3, who contributed consistently for the longest period of time, surpassed the others.

Assumes a consistent annual 6% rate of return with $1,200 contributions made at the beginning of each year. The amounts shown for investment growth and final results do not consider any transaction costs, fees or taxes. This represents a hypothetical investment and is for illustrative purposes only and is in no way to be considered indicative of any guaranteed performance an investor can expect to achieve. The actual annual rate of return and value will fluctuate with market conditions. Source: Schwab Center for Investment Research®.

 

* Assumes a consistent annual 8% rate of return with $25 contributions made at the beginning of each month. The amounts shown for investment growth and final results do not consider any transaction costs, fees or taxes. This represents a hypothetical investment and is for illustrative purposes only and is in no way to be considered indicative of any guaranteed performance an investor can expect to achieve. The actual annual rate of return and value will fluctuate with market conditions. Source: Schwab Center for Investment Research.

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The type of savings and investment strategies mentioned may not be suitable for everyone. Each investor needs to review a security transaction or strategy for his or her own particular situation. The examples mentioned are for informational purposes only and not intended to represent results you should expect in the future. Data contained here is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.