How To Convince Your Teenager To Start Saving for Retirement

Convincing a teenager to start saving for retirement can be difficult. After all, teenagers are notorious for living in the moment and figuring that life will just take care of itself as they live it. But it’s imperative that parents convey the importance of saving early so that they can benefit from the so-called “eighth wonder of the world,” compound interest. So, how should you go about doing it? Here are a few suggestions that may resonate with your teenager. 

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Show Them a Mountain Chart

The mountain chart is one of the favorite tools that investment advisors use to show clients the power of investing. A mountain chart is simply a long-term line chart of the performance of the U.S. stock market. Over a long enough time frame, the ups and downs of the market smooth out and all that’s left is a steadily increasing “mountain” of value, hence the name “mountain chart.” 

You can use a mountain chart with your teenager to show how much even as little as $1,000 invested a single time at age 15 can grow to by age 65 — $145,367, at an average annual return of 10%. But the real magic comes when you show your teenager that adding just $100 per month boosts that return to a whopping $1,877,804. Even the most jaded teenagers usually get interested when they see how easily they might reach $1.8 million in savings.

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Teach Them How Critical Time Is When It Comes to Compound Interest

There’s only one way that a 15-year-old who begins saving modestly can reach well over $1 million in retirement savings: the power of time and compound interest. Once you’ve hooked your teenager on the idea that saving just $100 a month after an initial $1,000 deposit can get them to $1.8 million, show them what happens if they wait until age 25 to start investing. Using the same parameters, their investments will only reach $686,107. Waiting until age 35 is nearly disastrous, as their savings will only hit $245,885 with a 10% annual return. 

Read: How COVID-19 Changed Gen Z’s Perspective on Money

Explain That Saving a Little Bit Now Means They’ll Be Able To Spend More Later

By now, your teenager should already understand that saving later in life results in a smaller amount in retirement. But if you flip the math around, you can show your teenager how much they’ll have to pay in the future to actually meet their retirement goals.

Let’s’ say your teenager is enamored by that $1.8 million retirement figure but only wants to start saving at age 35. Starting with $1,000, they will have to contribute about $800 per month — not $100 per month — to hit that goal. That’s an extra $700 per month out of their pockets, right at a time when they’ll want to be spending their money on cars, homes or their family. 

Discover: Surprising Ways Gen Z and Millennials Are Worlds Apart Financially

The Bottom Line

Telling a teenager they should do something that’s good for their future doesn’t necessarily mean that they’ll do it. But if you can show them in black and white how much money they can earn with relatively little effort, teenagers often become more receptive. Whereas some teenagers might light up at the thought of having millions in retirement, others might be more excited imagining that they can spend money on things like cars and houses in their mid-30s rather than putting all of it into a retirement account. The key is understanding how your teenager thinks and presenting them with the method they’re more likely to follow.

Retire Comfortably

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Last updated: Sept. 22, 2021

About the Author

After earning a B.A. in English with a Specialization in Business from UCLA, John Csiszar worked in the financial services industry as a registered representative for 18 years. Along the way, Csiszar earned both Certified Financial Planner and Registered Investment Adviser designations, in addition to being licensed as a life agent, while working for both a major Wall Street wirehouse and for his own investment advisory firm. During his time as an advisor, Csiszar managed over $100 million in client assets while providing individualized investment plans for hundreds of clients.

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