How to Start Investing For Kids

Financial literacy benefits everyone, but it’s especially valuable for children. Teaching your kids about investing gives them a strong head start, helping them build confidence while developing smart money habits early. The sooner they learn, the more time their money has to grow.

A few simple lessons can form a foundation for smart financial decision-making. Here’s how to get them started.

Saving vs. Investing

A great first step is opening a savings account for your child. This allows them to manage their own money and work toward early goals while building the discipline they can later use as investors. 

Once they’ve saved a bit or show interest, you can introduce concepts like risk vs. return, which is key to investing, since it requires the ability to balance the chance of losing money against the potential to make a profit.

A debit card can also help your children practice responsible spending. Kid-friendly cards allow them to access their savings, and many offer built-in budgeting tools and financial education.

Investment Options for Kids

Kids can invest in several types of assets, including:

• Stocks: They come with higher risk but also higher potential returns, and many kids already recognize companies like Apple, Disney, or Nike, which can make investing more engaging.
• Bonds: The risk is lower and they offer steady, predictable income but generally lower returns than stocks.
• Mutual funds and Exchange-Traded Funds: Their built-in diversity of funds and ETFs can help reduce risk while still offering growth potential.

Starting with familiar brands or simple index funds can make learning both fun and accessible.

How Kids Can Start Investing

Getting your kids going with investing their own money can be a family learning experience. Engaging them in conversations about the companies they invest in helps them understand how markets work, including the possibility of losing money and how to manage that risk wisely.

Step 1: Start With the Basics

Before buying any investments, kids should learn key concepts such as how the stock market works, what stocks are, and why diversification matters. There are many online resources, games, and kid-friendly videos can help.

Step 2: Set Clear Goals

Help kids decide what they’re working toward. Whether it’s saving for a bike or building long-term wealth, clear goals make it easier to choose investments and stick to a plan.

Step 3: Open a Custodial Account

You can open a custodial account through many major brokerages through the Uniform Gifts to Minors Act, which allows an adult to manage assets on behalf of your child until they reach age 18 or 21. 

UGMA accounts cover financial assets like cash, stocks, bonds and mutual funds. You’ll control their investment decisions, but all withdrawals must be for your child’s benefit.

Step 4: Try Simulated Trading

Virtual trading platforms let kids experiment with buying and selling stocks without real money. This builds confidence and teaches them how the market behaves.

Step 5: Start Small

When your child is ready, let them choose a few stocks, possibly using fractional shares, which allow investing with just a few dollars. 

Review the portfolio together regularly to track progress and discuss what they’re learning.

It’s Never Too Early to Plan for the Future

Investing teaches kids how money grows and how the economy works. As they become more involved, they’ll feel excited and empowered about saving and investing. 

With guidance and oversight, a hands-on approach can be both educational and rewarding.

Questions and Answers