‘The key to their financial independence is their age’: Suze Orman says young people would rather dress cool and go on TikTok than start investing for the future (2024)

FAQs

Why is it an advantage to start investing at a young age? ›

Young investors have the flexibility and time to study investing and learn from their successes and failures. Since investing has a fairly lengthy learning curve, young adults are at an advantage because they have years to study the markets and refine their investing strategies.

When you are young, you may have limited income and expenses, but it's never too early to start thinking about saving and investing. In fact, starting early can give you a significant advantage in building wealth over time. Investing can help you fulfill long-term goals, such as saving for college or retirement.

The Importance of Investing Early

Beyond just being allowed to invest, younger people have an upper hand—quite simply, the sooner you begin investing, the more time your money has to grow.

Growing your money through investing

Getting started as an investor at a young age – for example, in your twenties – will mean that your money could have a long time in which to grow if you invest for the long term.

One key short-term goal to plan for is the need for an emergency fund. According to Bankrate, your emergency fund should equal three to six months of bills. CNN Money suggests that you start saving for long-term retirement goals in your 20s, as soon as you leave school.

Teaching kids the basics of money management can help them develop the skills necessary to achieve financial success later in life. From saving and investing to creating and sticking to a budget, early money lessons can give your kids a leg up when it's time for them to make more significant financial decisions.

Having money in a savings account can help your child avoid having to rely on credit cards or loan options that charge a high interest rate in case of emergency.

The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals. Let's take a closer look at each category.

One awesome thing that you can take advantage of is compound interest. It may sound like an intimidating term, but it really isn't once you know what it means. Here's a little secret: compound interest is a millionaire's best friend. It's really free money.

Which investment is the riskiest but has the potential to earn you the most money? ›

Over many decades, the investment that has provided the highest average rate of return has been stocks. But there are no guarantees of profits when you buy stock, which makes stock one of the most risky investments.

Worrying about saving has always been hard for 20-somethings who begin their careers at the bottom of their earning potential. But saving is especially difficult right now because on top of student debt, housing and food costs remain high even as inflation has started to cool.

Some common financial mistakes that young adults make include high credit card debt, a lack of financial literacy that leads to poor budget choices and a lack of savings, not having an emergency fund, not addressing student loans, and not planning for the future.

Many young adults have debt from education expenses that impacts their ability to put extra money toward savings. Instead, they're putting a large chunk of their income toward debt payoff and are forced to delay their savings goals.

Investing in your 20s can have such an outsized impact because you're investing over a very long time, allowing you to capitalize on all that growth and compound interest. Bonds can be generally lower-risk, lower-return investments that can counter the risk of stocks.

What is the advantage of starting to invest at a young age? You have a longer time horizon, so your money has more time to compound and grow. Why is investing a more powerful tool to build long-term wealth than saving?