Becoming Bar or Bat Mitzvah is a huge milestone. It marks the age of responsibility when you have to start being accountable for your spiritual life. At the same time, a girl or boy becoming Bar or Bat mitzvah may receive a lot of money as gifts, and they will have to start thinking about what to do with the money. Some children spend all, or a significant chunk, of the money right away. They do not have a concept of delaying gratification for long-term reward. Responsible teens who invest their Bar or Bat Mitzvah money wisely can start to build up savings which will serve them greatly when they grow older. 

Bar or Bat Mitzvah money that has been invested properly can be used as a down payment for a house, for college tuition, to purchase a car, or for other bigger purchases in a few years down the line. Money that isn’t being invested loses value as inflation rises. Also, when your cash lies around, you’re missing out on ‘free’ money- money that comes in passively without you having to do anything for it. It’s also a good idea to learn about different ways of saving and investing your money from a young age, in order to teach financial responsibility- a skill that will serve children greatly when they become older.

How to invest your Bar or Bat Mitzvah money

There are many different options for how to invest money. Every option requires a risk/benefit assessment to see how safe it is, and at the same time, how much money it can yield. Contrary to popular opinion you don’t have to put your money in high-risk investments for it to earn a nice return. Read the guide below to discover different options for investing Bar or Bat Mitzvah money:

Save it:

A savings account at the bank is a very safe way to invest money. It’s a great option for people who are scared to take risks (and definitely better than keeping the cash in your piggy bank!) as it accumulates some interest over time. Still, the interest in very low (historically between 1 – 2%) and so it’s better to open a CD account which yields more interest over time.

Stock market:

Although a teenager may not open an account on the stock market, a parent or legal guardian can open a custodial account for them, and the teenager can help them manage it. The teenager gains skills in stock market trading, learning concepts such as stockpiling and market timing. Eventually, at the age of 18 or 21 (depending on the State), the account can be transferred to the teenager to be managed themselves.  2 of the most popular of these custodial fund types are UTMA and UGMA.

Index funds:

Owning indexes of the stock market such as the S&P500 or the Nasdaq have had fantastic returns of the last several decades.  By simplying owning an ETF or Mutual fund that follows the market index your portfolio will have more diversification.  This means that instead of purchasing stocks and strategizing when to sell them, the fund manager builds a portfolio that mimics the profile of the index- the young teenager can sit back and relax as the money invests itself.   To invest in indexes you should have a 2 to 3 year time horizon where you can let the money stay in the market and grow over time.

Bonds:

Bonds are used by companies and government bodies to finance projects or operations through loans. It is a fixed-income agreement that states a date for when the loan will be repaid, in addition to when the fixed interest will be paid. Bonds do not provide the biggest returns, but they are reliable because they provide a regular income. A young teenager may not need a regular income yet, but consider this option of you prefer to try something lower-risk, that will yield results on a regular basis.

Real Estate:

Real estate crowd-funding allows you to own a fraction of a commercial property, while investing relatively a little bit of money. You don’t need to have a good credit, and the good thing is, you don’t have any responsibility as a landlord. You just invest whatever you have, together with hundreds of other investors, and then watch the returns pile in. This investment is pretty stable, although as the market changes, the value of the property may rise of fall over time.

Conclusion

It’s important to think about your financial future and for most Bar and Bat Mitzvah’s it’s a great time to start this exploration as many suddenly find themselves in possession of gift money.. Responsible saving includes learning about the risks and benefits of the different ways to invest your money, identify your money goals and creating a plan for the future, and studying financial literacy frameworks to make smarter money decisions for life.