Growing Money
It's a Money Thing Junior Lesson #6
Investing can be rewarding, but it’s also risky
A savings account is a great place to store your money at first. It’s safe and it pays a little interest. But it won’t make you rich! Growing your money requires that you move some of it into investments with a higher rate of return.
Many financial experts suggest that your money should be growing somewhere between 5% and 10% per year. You won’t get that from a savings account these days.
Just compare $100 in a savings account earning 1% interest per year with an investment earning 5% per year and another earning 10% per year.
At 1% interest, you’re earning just a few pennies per year. After 20 years, you’ve earned only $20. With a 5% return, you more than double your money to $271.85. And with a 10% return, your money grows more than seven times to $738.70!
However, investments aren’t insured like your savings account. You take the risk of losing everything if your investment becomes less valuable.
But, I'm only a kid!
If you do want to invest now, ask your parents or guardian to look into a Custodial Account at your credit union or with a broker. You legally own the money in a Custodial account, but your custodian makes the investments on your behalf.
What can you put your money into to potentially make you more money?
Certificate of Deposit
Certificates of Deposits, or CDs, pay a little more interest than a savings account. They're low risk, and they're available here at Oregonians Credit Union.
Stocks
With stocks, you become a part owner of a public company. You can invest in a range of stocks, from "penny" (high risk) to "blue chip" (low risk). Stocks are available through a stockbroker.
Bonds
Bonds are loans purchased from the government that promise to repay you with interest. They are usually a slightly lower risk than stocks, and they're rated by credit agencies for risk.
Real Estate
You can invest directly in residential (like a house or condo) or commercial property (like a shopping mall). You can invest indirectly in the real estate market through real estate investment trusts (REITs).
Companies
You can invest in a company by directly lending money to its owners. You can also become one of the owners yourself. Investments in companies typically have higher risk, but there's potential for high returns.
Commodities
Commodities are the raw materials - such as metals, coffee beans, lumber and oil - that are used to make other things. You can purchase a contract to buy commodities at a specified price.
Remember:
- All investment comes with risk
- Do your research
- Only invest money you can afford to lose
- Diversity to spread the risk
Questions:
- Would you rather know that your money is safe while it grows a little bit, or would you be OK with taking a risk while your money possibly grows a lot?
- Are you willing to put a portion of your savings away for a long time to watch it grow?
- Is there a company or product that you would like to invest your money in?
Activity
Junior is borrowing too much money! What can he do instead? Draw a line to connect each picture in the top row to its match in the bottom row. Download the printable PDF.
Download the Investing Word Search Activity Sheet PDF
Download the Grow Your Money Comic PDF
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