Starting Early: Encouraging Retirement Planning Literacy And Practice For Young People

Image source: investopedia.com
Image source: investopedia.com

Long-term investment, particularly those for retirement, can be simplified into a few basic principles. The most important of these is that a person who saves up early, even with less money, would end up with more funds in retirement than the one who sets aside a fund in larger increments much later in life.

Compounding is the investor’s greatest ally, and it always favors early starters. Young adults are often encouraged to set aside funds for retirement as soon as they are able to fully take advantage of compound interest. Meanwhile, encouraging young people to learn all they can about retirement planning has become an important part of financial literacy advocacies.

Some approaches to financial education and early retirement preparation go the extra mile and advocate teaching the advantages of retirement planning to adolescents, while encouraging parents to have teens make contributions to retirement plans themselves. Starting young takes on a new meaning when it comes to teens. Investment and retirement planning in one’s teens, such as making contributions to IRA accounts, opens up the full potential of compounding.

Investing for teenagers is a ball game different from that of their young adult counterparts. Young adults have on their side both the advantage of having larger salaries and a larger array of available tax advantaged investment channels. Teens, meanwhile, often only have minuscule part-time incomes that cannot always leverage the same tax advantages, and must resort to different strategies to jumpstart their growth.

Image source: thrivingfamily.com
Image source: thrivingfamily.com

Both groups are quite reluctant to consider retirement planning, for rather obvious reasons. Young adults and working teens alike are often more concerned with the here and now. The former are more keen on building careers and making improvements to their lives while minor teens are more concerned with earning for everyday luxuries. With the right encouragement, however, young adults and teens alike can be motivated to make the first small steps toward building a retirement fortune.

Aaron Novinger is a low-risk retirement consultant and investor based in Arlington, TX who has written two seminal works on modern investment strategies. Visit his website for more on him and his career.