A Guide to Investing for Teens

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Contributor, Benzinga
July 14, 2023

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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 savvier 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 brokerage 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.

Custodial Account Basics

A custodial account works in this way: A parent or guardian opens the account, then gifts funds into the account that are able 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 $15,000 — 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. 

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. 

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.

Best Custodial Accounts for Teens

Although you can find many trading platforms to choose from, some are particularly suited for custodial accounts.

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 account you like, chances are you can set up a custodial investment account with your child. 

Types of Investment for Teens

Investing can be a great way to build wealth and save for the future, but it's important to make sure that teens understand the risks associated with investing. While teens may not have as much money to invest as adults, there are still plenty of investment opportunities for them. Here are just a few types of investment options that teens should consider having in their investing account:

Mutual Funds

Investing in mutual funds or index funds is one of the most popular ways for teens to invest. Mutual funds are professionally managed collections of stocks, bonds, and other investments that spread out the risk and make it easier for investors to diversify their portfolios.

ETFs

Exchange-traded funds (ETFs) are similar to mutual funds but often come with lower management fees. ETFs can provide teens with a variety of different investments, such as stocks, bonds, commodities, and more.

Stocks

Investing in individual stocks can be a great way for teens to get started with investing. It's important to know which stocks to invest in and when to buy or sell them. Teens should consider doing research on different companies before investing in any particular stock.

Bonds

Bonds can provide a steady stream of income that is relatively low-risk. Bonds are essentially loans made to companies or governments, and they guarantee repayment of the principal plus interest over a set period of time. Investing in bonds can be a great way for teens to gain experience with investing while earning some money in return.

Investing in the Stock Market 

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.

Stock Movers

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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 with compound interest

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Teach Your Kids About Wise Spending

Teach your kids about wise spending with Greenlight.

There was a time when opening a bank account for kids was difficult. Parents pulled together change and aded a few dollars, went to the bank and got started. These days, kids can manage money using something like the Greenlight Debit Card. As a parent, you can register for a Greenlght card, give it to your child and deposit money as needed. 

Your child(ren) use the card just like any other debit card, and they can easily access their allowance, money they earned through a job or take payments for babysitting, etc.

Greenlight also features budgeting and financial education resources. Kids learn how to do more than just deposit and spend money. Parents never need to worry about lost cash, and kids have just as much spending power as adults.

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 Benzinga researched.

Benzinga’s Best Online Stock Brokers

Here is a list of some of the best online stock brokers identified by Benzinga. 

Novice Traders Graduate to Bigger Gains

This quick introduction just 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. Be sure to come back to Benzinga for more investment and personal finance news, tips and articles. 

Frequently Asked Questions

Q

How is fintech spurring teenager interest in trading?

A

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.

Q

What should I invest in as a teenager?

A

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. 

Q

Can a 14 year old start investing?

A

Although a 14-year-old can’t legally open a brokerage account, a parent can open a custodial account for their teenager. 

About Kathryn Hauer, CFP®

Kathy is an expert in finance (personal, corporate), financial planning, financial literacy, tax preparation and laws, saving and investing, retirement, insurance, careers, college education planning and financing, cannabis, gig economy, forming and running a business, credit and debt issues, blue-collar workers, and military issues. She has a strong interest in crypto, DeFi, FinTech, InsureTech, AgTech.