In our 2002 book The Motley Fool Investment Guide for Teens: 8 Steps to Having More Money Than Your Parents Ever Dreamed Of, we announced a contest to award a five-year, $1,000 annual grant for the "most eloquent and effective advice on personal finance, investing, or business offered by a teen." Now that the fifth year has ended, it's time to announce the contest results for 2006. Congratulations to our winner, Kenny Lee!
The winning entry
We were impressed by many of the entries, but the judges deemed Kenny's the best. Kenny hails from Monrovia, Calif. Below you can read much of his winning entry, which condenses many important financial lessons into a small package. I've added a few notes in brackets. Share it with any teens you know. Many of us ex-teens could learn a few things from Kenny, too.
1. Save your money! Most teenagers tend to work so they can earn money to spend. Little do they know, spending money is actually hurting them. In the U.S., [the personal savings rate] is [near] an all-time low.
2. Open a high-yield savings account. Don't let your money sit in a piggy bank or let it collect dust in your drawer. ING Direct offers 4.50% APY [annual percentage yield] on your money, with a minimum balance of $1. (HSBC and Citibank require account owners to be at least 18.) $1,000 can be $1,000 if you put it in your drawer, $1,009 if you put it in a checking/savings account in your bank, or $1,045-plus if you put it in a high-yield savings account.
3. Do not get into debt. Getting a credit card is becoming easier and easier in the United States. The key to using credit is to use it effectively. Always pay your balance in full.
4. Open rewards credit cards. Many people do not know the benefits of opening a rewards credit card. In the end, it will save you some money and get you a few perks.
5. Start investing young. People tend to think that investing is for adults, but it's not true. It is easy to set up an investment account under a custodial name. Keep your transaction costs low, [and] open an account with low commissions, [such as with] Scottrade, E*Trade, or TD Ameritrade. If you make more than 10 trades per year, it really adds up. [That's true: A difference of just $15 in commission costs can amount to $300 per year, if you make 20 trades. Learn how to find a good and inexpensive broker by checking out our Broker Center.]
6. Never fall for the "$0 down" car-buying scheme. Many people immediately jump and buy a car when offered $0 down. That is the easiest way for teens to get into an upside-down loan, when you owe more than the object is worth. [Dayana Yochim can tell you how to avoid bad car loans.]
7. Owning is better than renting. Whenever you have enough money to have a down payment and a stable monthly income, you should consider buying a house. As demonstrated in the board game Monopoly, it is more beneficial to own than to rent.
8. Diversification is key. Whenever you are investing, always diversify. Never put all your money into one stock or sector. Consider investing in Berkshire Hathaway
9. Never try to catch a falling knife. When investing, do not try to buy stocks that are falling. Instead, wait for them to recover, then buy. Famous examples [of falling knives] include the dot-com bust of 2000. Many investors decided to follow the crowd and buy stocks when they were cheap, but in the end, most investors lost money. Take a look at JDS Uniphase [
More resources for teens
Help teens get a financial head start in life by pointing them to some other informative resources. Here are a few, starting with a book and a nook:
- Our book The Motley Fool Investment Guide for Teens: 8 Steps to Having More Money Than Your Parents Ever Dreamed Of. (Check it out on Amazon or at your local bookstore -- it's gotten good reviews!)
- Our online nook for teens, Teens and Their Money. It's chock-full of information and advice on saving, earning, spending, and investing money, from both Fool staffers and fellow teenagers.
- Our Teens and Their Money discussion board.
- This article on making your teen a millionaire, which offers some eye-opening excerpts from our book.
The best gift you could give to teens you know is a nudge toward financial independence. If they don't thank you now, they'll likely do so some years down the road.
Go ahead -- help make someone a millionaire!
Longtime contributor Selena Maranjian is no longer a teenager and regrets that she didn't start investing until her 30s. At least she'll never have to take another gym class, though. She owns shares of Microsoft, Berkshire Hathaway, and an S&P 500 index fund. For more about Selena, view her bio and her profile. The Motley Fool is Fools writing for Fools.