Investing at 17: an early start to building wealth
Updated: Mar 18, 2022
Traditionally, when we think of investing, we imagine wealthy professionals in suits.
But with the options available and the many ways to access the world of investing, you can get started young and reap the benefits of being a teenage investor. And it doesn’t need to be complicated or scary.
Firstly, holding stocks and shares in your own name in the UK is restricted to people aged 18 and over.
That said, you still have some investing options when you’re 17.
1) Invest in a Junior ISA (through your parents)
A Junior ISA is like an Adult ISA, but specifically designed for those under 18.
A parent manages the Junior ISA but the funds in the JISA have to be for the child.
Anybody can pay into a JISA – other family members, friends and even the child themselves.
And as you can open a bank account in the UK from the age of 16, provided you have the required proof of identity, you could start making contributions into your Junior ISA quite easily with your debit card.
This can be a useful option for a 17-year-old not quite old enough to hold stocks and shares in their own name, as they can invest indirectly via their Junior ISA.
A Junior ISA has a current annual allowance of £9,000.
Like an Adult ISA, you pay no income or capital gains tax on growth. So as an initial foray into investing, the tax benefits are very attractive. And once you turn 18, the Junior ISA automatically turns into an Adult ISA, ready for you to continue investing into it.
2) Pay into a workplace pension (you’ll need to be pro-active about it)
This may not seem like investing on the face of it, but anybody who has a pension is an investor.
Money that is paid into your pension by you/your employer gets invested by managers of a pension scheme.
To be eligible to invest in a workplace pension at 17 years old, you would need to be earning a salary of some kind. If you’re not in full-time education, you may wish to start saving for retirement early.
Your employer does not have to automatically enrol you into a workplace pension until you’re 22.
But you are entitled to choose to ‘opt in’ or ‘join’ between the ages of 16-21, provided you meet certain earnings criteria.
If you’re 17 earning over £503 a month
You have the right to ‘opt in’ to your workplace pension which means your employer must also pay contributions towards your pension.
This is free money, effectively. Win.
If you’re 17 earning under £503 a month
You have the right to ‘join’ your workplace pension. This means you can pay into your pension from your salary, but your employer does not have to pay contributions on top.
And don’t forget seasonal work. You might be doing a full-time temporary summer job when you’re not in college. Even then, you’re entitled to a workplace pension. Even if it’s a Zero Hours contract.
Employers may even choose to ‘postpone’ your enrolment into a pension, but you still have the right to ask to join and have the postponement period removed.
Many people under 22 earning salaries are not aware of their rights to become a member of a workplace pension.
Why it pays to start investing as early as you can
When you’re 17, investing for the future probably won’t feel like a priority. You’re young and living for the moment. Who wants to think about getting old when they’re still a teenager?
But investing early is the key to building wealth for later in life, when you’ll be dealing with big financial responsibilities.
Something powerful called Compound Interest shows the value that investing from an early age can have on your wealth.
What is compound interest?
Compound interest is effectively the process of earning interest on interest. The longer your money is subject to compound interest, the faster it grows. That’s when compound interest starts to get a bit magical.
Let’s compare two scenarios to show the effect of compound interest.
One investor is 17 and starts contributing to an ISA.
Another investor is 27 and starts contributing to an ISA.
They both want to build as much money in their ISA by the time they’re 50.
Invests £50 a month for 33 years – a total of £19,800
The final value of this money is £50,529.39 at an interest rate of 5% a year
He has made £30,679.39 on top of his own contributions.
Invests £50 a month for 23 years – a total of £13,800
The final value of his money is £25,965.41 at an interest rate of 5% a year
He has made £12,115.41
The 17-year-old investor has invested around £7,000 more than the 27-year-old but has made an extra £18,000.
The 17 year old made a return of 155.20%. Just thanks to compound interest.
So while £50 a month may not seem a lot, what every single 17 year old has on their side when it comes to investing is….TIME.
Thinking about your later life when you’re 17 is clearly not a priority for most teenagers.
Ironically, the decisions you make about investing when you’re young can be crucial in determining the lifestyle you can afford when you’re older.
Your future self will thank you for starting early.