Have you ever wondered how some people seem to have money that grows all by itself, even while they are sleeping?
It isn't magic, and it isn't a secret code. It is called investing, which is a way of using your money to help things grow so that you end up with more than you started with.
Imagine you have a single, juicy tomato. You could eat it right now, and it would be delicious, but then it would be gone. This is like spending your money.
Or, you could take the tiny seeds from inside that tomato and plant them in the dirt. You would have to water them, make sure they get sun, and wait for a long time. But eventually, that one tomato could turn into a whole bush with fifty tomatoes! This is the core of investing.
Imagine you have $10. You could buy two bags of candy right now (Spending). You could hide it under your mattress (Saving). Or, you could give it to your friend who is starting a lemonade stand to help them buy lemons, and they promise to give you $12 back after they sell all the drinks (Investing).
The Three Things You Can Do With Money
When you get pocket money or a gift for your birthday, you usually have three choices. You can spend, you can save, or you can invest. Each one has a different job to do in your life.
- Spending is for things you need or want right now, like a comic book or a snack.
- Saving is putting money in a safe place, like a piggy bank, so it is there when you need it later.
- Investing is putting your money to work to help a business or a project succeed.
Finn says:
"So wait, if I invest my money, I can't touch it to buy a LEGO set today? That sounds a bit tough!"
When you invest, you are taking a risk that your "plant" might not grow, but you are doing it because you hope to get a much bigger reward later. While savers keep their money safe, investors try to make their money grow.
Someone is sitting in the shade today because someone planted a tree a long time ago.
What Exactly Are You Investing In?
In the adult world, you don't usually plant seeds in the ground to make money. Instead, you put your money into different types of assets. These are things that have value and can become more valuable over time.
One of the most common ways to invest is through stocks. When you buy a stock, you are buying a tiny "slice" of a company. If that company does well and sells more toys or gadgets, your slice becomes worth more money.
When you buy a stock, you are a 'shareholder.' This means you actually own a tiny piece of everything that company owns: their offices, their computers, and even the secret recipes for their snacks!
Another way is through bonds. This is like being a hero and lending your money to a city or a company so they can build something new, like a bridge or a school. In return, they promise to pay you back your money plus a little bit extra as a thank you.
Why Does Investing Take So Long?
Investing is not a "get rich quick" trick. It is a "get rich slow" strategy. The most important ingredient in any investment is time.
Think about the marshmallow test. If a scientist gave you one marshmallow now, or told you that you could have two if you waited fifteen minutes, what would you do? Investing is just like waiting for that second marshmallow.
Let's look at the power of growth: If you invest $100 and it grows by 10% each year: Year 1: $110 Year 2: $121 Year 3: $133 Year 10: Over $250! Your money more than doubled just by being patient.
Mira says:
"It's like building a giant treehouse. You have to spend time building the floor and the walls before you can finally sit in it and enjoy the view!"
Because you are letting someone else use your money to build their business, you have to be patient. It takes years for a company to grow from a small shop into a giant global brand. But the longer you wait, the more your money can work for you.
An investment in knowledge pays the best interest.
Can Kids Actually Invest?
Many kids think that investing is only for people in suits on Wall Street, but that is not true! While kids usually need an adult to help them set up a special account, the concept of investing is for everyone.
Next time you are at the grocery store, look for three things your family buys every week. Use a search engine at home with an adult to see if those companies are on the 'stock market.' You might find out you can own a piece of your favorite cereal maker!
You can start by learning about the companies you already love. Do you like the games on your console? Do you love the shoes you wear to school? These are all companies that people invest in every single day.
Mira says:
"I realized that by buying a 'share' of a toy company, I'm basically a tiny boss of that company. That is so cool!"
Learning to be an investor means training your brain to look at the world differently. Instead of just seeing a cool toy, you start to see a company that is growing. You start to see how your money can be a superpower that helps the world build new things.
The only way to avoid mistakes is not to invest, which is the biggest mistake of all.
Making Your Money Earn Money
The coolest part of investing is that it allows your money to earn money without you doing any extra chores. When your investment grows, that new money can be invested again.
It is like a snowball rolling down a snowy hill. It starts small, but as it rolls, it picks up more snow and gets bigger and bigger. The sooner you start, the bigger your snowball can get! You can learn more about this in our guide on why-start-investing-young.
Gets a cool toy today, but the money is gone forever once the toy is used.
Waits to buy the toy, but ends up with enough money to buy two toys later.
Something to Think About
If you could own a tiny piece of any company in the world, which one would it be and why?
Think about what you care about. Do you want to support a company that makes amazing technology, or one that helps protect the planet? There is no wrong answer, it is all about what you believe in!
Questions About Investing
What is the simplest definition of investing?
Is investing the same as gambling?
Do I need a lot of money to start investing?
Ready to Grow Your Superpower?
Now that you know what investing is, you've taken the first step toward becoming a money master. The next step is understanding that every investment has a balance between safety and growth. Check out our guide on risk-and-reward to see how investors make smart choices!
