Are you saving or are you investing?

Teaching youth the difference between saving and investing will help put them on the path to wealth.

The road to financial security involves saving and investing your money, which means starting even while you are a youth. While saving and investing involve planning to use your money later and maintaining your ownership of the funds, there are distinct differences.

According to the High School Financial Planning Program through the National Endowment for Financial Education, saving is putting aside money to use for later. The money can be saved in an emergency fund or be for a specific SMART goal. You might save your money in a piggy bank, safe or envelope. You could also save it in a savings or certificate of deposit (CD) at a credit union or bank, which may earn interest.

Investing, on the other hand, is specifically putting money aside with the intent it will grow and make money for you. Investments might be rental properties, businesses or owning stocks.

The difference between saving and investing is that, with investing, the original amount of money you invested might not be available if the value of the investment drops. Not all investments are insured while most savings programs—those through banks and credit unions—are insured so your money is secure.

With the increased risk of investments comes the potential for higher growth, too, but there is the risk of losing what you invested—a big difference between saving and investing. Youth can start investing with the support of a custodial account, which a parent or guardian can set up through a brokerage or mutual fund company. The assets would belong to you, but you would not have legal control over them until you are no longer a minor as defined by your state.

Remember, wealth is the result of accumulating assets through saving and investing. It is not a matter of how much you earn or make, but how much you keep that determines wealth. Sometimes young people do not have a lot of money to start saving or investing. However, it is not about the starting amount of money. Saving even small amounts of money into interest-earning accounts or custodial investing accounts will lead to larger amounts in your future. The key is to start!

Michigan State University Extension and Michigan 4-H Youth Development help to prepare young people for successful futures. As a result of career exploration and workforce preparation activities, thousands of Michigan youth are better equipped to make important decisions about their professional future, ready to contribute to the workforce and able to take fiscal responsibility in their personal lives.

To learn about the positive impact of Michigan 4-H youth career preparation, money management and entrepreneurship programs, read the 2016 Impact Report: “Preparing Michigan Youth for Future Employment.”

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