The thinking kid's guide to investing

By Noreen Rasbach
Globe Investor Magazine, November 18, 2008
Photography by Dorothy Shi/Courtesy Farnoosh Torabis

Farnoosh Torabi is the New York-based author of You're So Money, a personal finance book aimed at her own 20-something age group. She is a senior correspondent for TheStreet.com, a columnist at Entrepreneur Magazine and the personal finance expert on Real Simple. Real Life., a series on TLC about simplifying your life.

Do you know a lot of young people who are getting themselves in debt, and by that I mean so-called bad debt like credit cards, not just student-loan debt?

I see it less and less with my demographic, who are approaching 30. I think that's because the light bulb went on at some point. But, for the generation that's just coming out of college or is still in college, debt is really a problem. I understand that there's pressure on students to live it up in a certain way that's unaffordable.

What do you tell these people?

Make sure, first, that you have a supportive group of friends. Quickly adopt a sense of ownership over your money. Don't just let it spill out of your wallet. Make paying down your credit card a monthly priority. Learn to pay yourself, too. See the potential in saving for your future, what it means to tuck away money each week-and how much that becomes in a year.

In your book, you say it's possible to live a guilt-free, Gucci- and gadgetclad good life without sacrificing financial security. How?

The first step for young people is to think about their short-term goals. Think three, five years out. Where do you see yourself? What are the things that are really important to you? Then go back and say, "What am I spending on in my day-to-day life and where is my money going that is not contributing to those big goals?" Let's say you decide you have to have designer clothes. Well, fine, but then what can you live with not having, so you can afford those designer clothes?

How do young people get started in investing when they're not familiar with the world of stocks and bonds?

You have to first get into that environment by finding resources that can educate you really well. I know a lot of people follow [Mad Money host] Jim Cramer, and he's great, but I don't think you should stop there. You should treat your interest in stocks as you treat anything else you're obsessed with. How do you educate yourself about sports? You survey the teams, you study the stats, you go to the appropriate websites, you talk to your friends who are also into sports.

You probably shouldn't be investing in stocks if you have a huge credit card debt load. But if you have money, there's an advantage to investing in your 20s. You've got time. If you make mistakes, you can learn from them, chart a new course and become a much better investor. Much of your book is about being smart and sensible with your money. Does the part of the book written by Jim Cramer about stock speculation contradict that advice?

That section is really reserved for those young adults investing aggressively. I think that's a growing population of people in their 20s. I wanted them to at least have the education. Too often, financial advice for people in my age group doesn't address investing. It's more about how to buy a car or how to pay down your debt. To neglect that there's even the possibility to invest is really irresponsible, because so many young adults are doing it. It's a great thing to encourage in your 20s.