When you picture investors or stock traders, you don’t envision your teens hunched over a multimonitor display, reading candlesticks and following the 200-day moving average. But why not? Today’s teenagers are more savvy than ever, starting their own businesses, driving charitable endeavors and generally using their time more wisely than many previous generations of teens. Investing provides an opportunity for teenagers to learn a new skill that offers lifelong benefits.
How Old Do You Need To Be To Invest?
Banks and brokerages generally require that a person be 18 years or older to open an account on their own. However, an adult parent, guardian, relative or friend can open financial accounts as the custodian for the child. In a custodial account, the adult has responsibility for investment and other actions until the child reaches age 18, at which time the ownership can be transferred to the child.Â
Custodial Account Basics of Investing for Teens
A custodial account works in this way: A parent or guardian opens the account, then gifts funds into the account to be used for investing. As of 2021, the maximum amount that can be gifted to an account without needing to file IRS Form 709 on most platforms is $18,000 in 2024 — note that unless you are in a position to eventually gift $11.7 million over your lifetime, neither you nor your children will owe any income tax on your gifts even if you do have to file Form 709.Â
Even though an adult is the custodian of the account, the teenage investor isn't without control over the account. To the extent permitted by the custodian, a teenager can invest and trade as much as the funding in the account will allow.Â
The U.S. Securities and Exchange Commission (SEC) offers a wealth of knowledge for parents and teens who are ready to test the investing waters. Teenagers can use Investor.gov’s tips for students and other websites, competitions and games as they learn to save and invest. Parents have access to helpful resources as well.
The Best Custodial Accounts for Teens
Although you can find many trading platforms to choose from, some are particularly suited for custodial accounts. For example, Fidelity Investments Inc. offers its Fidelity Youth Account, a brokerage account for teens 13 to 17 that's built to start their investing journey. They can trade most U.S. stocks, exchange-traded funds (ETFs) and Fidelity mutual funds in their own accounts with no subscription fees, no account fees, no minimum balances and no domestic ATM fees.
Fidelity’s dedicated Youth Learning Center publishes materials developed specifically to help teens develop good financial habits. Parents are responsible for their teen's activity and can monitor account activity online through immediate alerts, monthly statements and trade confirmations. You and your teen are partners in navigating and conquering this new world.
Other excellent platforms include well-known brokerages like E*TRADE, TD Ameritrade’s thinkorswim — now owned by Charles Schwab Corp. (NYSE: SCHW) — and many others. If you as a parent already have a brokerage you like, chances are you can set up a custodial investment account with your child.Â
Investing in the Stock MarketÂ
The most exciting aspect of investing for teens would have to be trading stocks. The elation of buying 30 shares of AMC Entertainment Holdings Inc. (NYSE: AMC) at $12 per share and watching it catch meme stock status and shoot up to $62 per share can’t be matched. Of course, teens will also learn that not all stocks rise, especially at that meteoric rate. But that’s a lesson that’s better to learn at age 16 when you are losing your holiday gift money rather than at age 35 when dollars evaporate for a much-needed paycheck toward your mortgage.
Having a real account with money in it is a great impetus for teenagers to learn about the economy and how it affects the stock market. Rewards gained from growing the account will further encourage interest in the business world as teenagers learn ways to make profits by investing their money.
High-Yield Savings Account
Another tool parents may wish to pursue is opening a high-yield savings account for their children. These financial investments are low-risk ways to steadily, although slowly at today’s interest rates, earn money by compounding interest.Â
Start Investing as Soon as Possible
It is a huge boon to help your child invest as early as possible to promote smart financial planning and spending behaviors, both of which are immensely helpful to a teenager as they progress in life. Parents can sign teens up to practice trading with some of the great simulated trading apps.
Novice Traders Graduate to Bigger Gains
This quick introduction opens the door for a peek inside at the different ways your teenager can start learning about investing careers and how you as a parent can aid in that.
Frequently Asked Questions
How is fintech spurring teenagers interest in trading?
Fintech startups are looking to serve younger investors, including teenagers. In the last 5 years, investors contributed $535 million into 89 known deals with fintech startups that described themselves as offering savings platforms for children, young people and parents. Of that, $344 million was raised in 2020. Quite a few startups are making waves, including Greenlight Financial Technology, founded in 2014, which guides parents to teach children how to save with its app and debit card products.
What should I invest in as a teenager?
The world of investing is wide open, and as you gain more education in stock trading, you’ll become more confident in your choices. Many teens like to invest in stocks of companies whose products they love. A good way to diversify would be to buy shares in an exchange-traded fund. Also, stocks of companies that pay dividends let you earn money while you hold the stock.Â
Can a 14-year-old start investing?
Although a 14-year-old can’t legally open a brokerage account, a parent can open a custodial account for their teenager.Â