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Young Adults

Investment 101
Gain Control of  Your Finances in 5 Easy Steps

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Investment 101: Teaching Teens to Invest

Teaching your children about investing develops important skills that will benefit them throughout life, says the Michigan Association of CPAs. A good time to begin is when your child is a teenager.  Here's how to get started.

Begin with the Basics

Before you get into margin calls, stocks splits, and P/E ratios, you need to help your teen understand some fundamentals. Start by sharing your investment philosophy. Explain that saving is for short-term goals and investing is a strategy that can help them meet long-term goals.

Next, discuss the concept of risk versus reward. Teens need to know that investments that offer higher returns often come with higher risks, and that investments with lower risks may very well deliver lower returns. This is a good time to explain the benefits of investing for the long haul, and how over time, stocks typically outperform other investments.

Diversification is another important concept for the aspiring teen investor. While stocks may be more attractive to teens, there may be a place in their portfolio for other investment options. Examples include:

Practice, Practice, Practice

Like most things in life, when it comes to investing, it's a good idea to experiment before actually putting money on the line. One of the best ways to do this is to have your child choose several stocks and follow their performance. This works particularly well when teens invest in companies that they are familiar with, such as a clothing, computer, or soft drink manufacturer.

Teach your teen how to track the company's stock price in the newspaper's financial listings or online. Watch for stories on companies your teen is familiar with and discuss how news impacts a stock's performance.

There are also a number of stock investing games on the Internet that offer a fun and educational introduction to investing. You may also want to talk to someone at your child's school about offering an investing simulation game allowing student teams to compete against other schools. Additionally, some high schools offer investment clubs.

Reality Time

Sooner or later your teen will want to move on to the real thing. Until your son or daughter is age 18 or 21 (depending on where you live), he or she won't be able to own stocks or open a brokerage account. An alternative is a custodial account, which is set up and controlled by an adult for a minor. Just be aware that once the child reaches the age of majority, he or she has full rights to the assets in a custodial account.

Educate your teen about the difference between full service brokerage companies that offer a wider range of services and charge higher commissions for buying and selling, and discount brokers that leave investment decisions up to the investor and charge less to trade. He or she will also learn that companies have different minimums for opening accounts.

A Lasting Investment

CPAs agree that when you teach your teenager about investing, you're making an investment of your own. Teens who get into the habit of investing at an early age are more likely to become financially responsible adults.

You seek the expertise of CPAs at tax and audit time, of course.   But CPAs also promote personal and professional financial security year round. Visit the CPA Referral Service on the MACPA Web site to search for a CPA in your geographical area or specific area of expertise.

This article was submitted by the Michigan Association of CPAs (

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Gain Control of Your Finances in Five Easy Steps

Would you like to know that you are on firm financial footing? By following these five easy steps, recommended by the Michigan Association of CPAs, you can gain control of your finances before year end.

1. Assess

The first step is to assess your current financial situation. Start by calculating your net worth. List all your assets (what you own) and all your liabilities (what you owe). If your assets exceed your liabilities, you have a positive net worth. If you have more liabilities than assets, your net worth is negative. At the end of each year, recalculate your assets and liabilities to determine your progress toward building your net worth.

2. Identify

Once you have a clear idea of your financial picture, you should set financial goals. Whether your plans call for buying a home, taking a vacation, retiring early, or paying off debt, your financial goals help you determine what is important to you. Financial goals also serve to motivate you. It's always easier to save money when you know what you are saving for.

CPAs recommend that you divide your goals into short-, medium-, and long-term goals. Be sure each goal is focused, realistic, measurable, and has a specific target date. You should review your goals regularly and make adjustments when necessary.

3. Budget

Your next step is to create a budget that will help you attain your financial goals. The key is to spend less than you earn. The first step in preparing a budget is to figure out your current cash flow. Start by adding up your income from your salary, bonuses, investment income, and any money you get from other sources.

Next, track all your expenses for a month or two. That includes regular expenses, such as your mortgage or rent, food, transportation, insurance, and credit card payments, as well as discretionary expenses, including entertainment, dining out, and gifts. Be sure to factor in expenses that do not occur every month.

It's important that you record every dollar you spend, whether it's with cash, check, or credit card. Seeing how you are spending your money will help you determine where you can make cuts and redirect that money toward meeting your financial goals.

When creating your budget, be sure to pay yourself first. That means deciding how much you can save each month and treating it like any other bill. Better yet, have the money automatically deducted from your paycheck and deposited into a savings account. You won't miss what you don't see.

4. Manage

Managing debt is a critical step in gaining control of your finances. If you are carrying a high level of debt, make paying down your credit cards a priority. There are several strategies you can use, such as consolidating your debt on a credit card with a lower interest rate and/or paying off high-interest debt first. But the best way to reduce debt is to double or triple your card's minimum monthly payments. Depending on your balance, higher payments could save you thousands in interest payments and shave months, or maybe even years, off your debt.

5. Prosper

There's a great deal of peace of mind that comes with gaining control of your finances. If you need help in completing these steps, contact a CPA. He or she can work with you to create a plan for achieving your financial goals.

You seek the expertise of CPAs at tax and audit time, of course. But CPAs also promote personal and professional financial security year round. Visit the CPA Referral Service on the MACPA Web site to search for a CPA in your geographical area or specific area of expertise.

This article was submitted by the Michigan Association of CPAs (

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