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Investing For Kids

Teaching your children the tricks of the trade when it comes to investing can give them an edge later in life. Simple lessons could equip them to be better investors when they have some money of their own to invest. Encouraging saving and budgeting habits in kids is commonplace, but less emphasis is put on investing for kids. Read on to learn how to introduce your kids to the stock market

Overview: Investment Accounts for Kids

Before beginning the lessons on the stock market, you’ll want to make sure an investment account is the right choice for your child. 

Saving vs investing

If you want to wait until your child has money set aside to teach them about investing, you could help them open a savings account. This would allow them to practice managing their money while working to save for investments in a few years.

On the other hand, invested money earns higher returns than the saved money, although there is an element of risk involved in the former. If you think your child is ready to handle this concept of risk, or has enough money saved away to learn it on their own, it may be a good time to teach them about investing.

Asset classes for kids

There are several avenues or asset classes for investment, such as stocks, bonds, commodities, currencies and the whole categories of derivatives. The easiest asset class for kids is equity or stock.

Stocks, however, are relatively risky compared to bonds, commodities such as gold and some safe haven currencies. However, children can connect better with stocks due to their association with companies, whose products and services children are familiar with.

How old do you have to be to invest in stocks?

At age 11, prolific and astute billionaire investor Warren Buffett bought his first stock from the money he saved working in his family’s grocery store.

He did odd jobs while he was a teen and used the money he saved to buy stocks of local companies. Buffett’s first tryst with investment came in the year 1941. A lot of things have changed between then and now, most notably with kids being well informed via modern communication devices.

Depending on the type of brokerage account you open for your child, there may be an age restricting on if they can invest. This is brokerage specific, but parents can usually open a custodial brokerage account for kids under 18 years old.

How Kids Can Start Investing

Investment should be made as a family activity. Kids can join discussions concerning companies that form their portfolio, the moves of those assets, and more. When parents discuss their holdings with children, they should help them understand that investing in stocks is a risky business and therefore, it requires thorough background research and a clear strategy to avert or minimize any potential losses.

Step 1: Describe investing in simple terms

Explain to them that it is merely a form of deploying the money they have saved in something, which can fetch you incremental returns. One can also take the children to annual shareholders’ meeting of local companies to get them interested.

Step 2: Have them make a few stock picks

Include them in stock picking by asking them which company’s stock they would prefer to own. Kids may not have full knowledge about the whole gamut of industries and sectors. At least they will be familiar with companies such as Disney, Nike, Nintendo etc, whose products they are familiar with. With these fledgling steps, though children may not get the whole hang of things, for sure, they pick up the basics.

Step 3: Practice with a simulation

Before they are ready to go, you can make the children play stock market simulation games with paper money. At this point, you can do all the hand-holding children would need, walking them through the basics of investing. Once children gain some familiarity by watching the parents invest, and they accumulate some money for investing, parents can explain the concept of a portfolio, which serves the purpose of diversification and risk minimization.

Step 4: Select an online brokerage

For children that are going to build a simple portfolio and hold that position for a number of years, a brokerage for beginners is a great way to go. Check out our favorites below.

Broker Best For Commissions Account Minimum Choose your platform
Ally Investment
  • Active traders
  • Beginners looking to start trading
  • Low fees
$4.95 volume discount available $0
Get started securely through Ally Investment's website
1 Minute Review

If investors are on the hunt for a bargain broker, Ally Invest could be the one. With low commissions across the board, Ally Invest (formerly TradeKing) stops potential investors in their tracks with its especially low mutual fund commissions. Commissions on stocks and ETFs are notoriously inexpensive as well, and for more active traders or those with larger account balances, commissions can dip as low as $3.95 per trade.

Pros
  • Volume discounts available
  • Among the lowest fees in industry
  • Good for every experience level
  • Excellent customer service
Cons
  • Lacks physical locations
Current Promotion

$3.95 per stock trade for Active Traders at Ally Invest

TD Ameritrade
  • Beginner investors
  • Advanced traders
  • Investors who want portfolio-building advice.
$6.95 $0
Get started securely through TD Ameritrade's website
1 Minute Review

This publicly listed discount broker, which is in existence for over four decades, is service-intensive, offering intuitive and powerful investment tools. Especially, with equity investing, a flat fee is charged, with the firm claiming that it charges no trade minimum, no data fees, and no platform fees. Though it is pricier than many other discount brokers, what tilts the scales in its favor is its well-rounded service offerings and the quality and value it offers its clients.

Pros
  • Superior technology
  • No account minimum balance
  • Excellent customer support
  • Premier data and news partnerships
Cons
  • Slightly higher commissions
  • Can be for more advanced users
Current Promotion

Trade commission–free for 90 days & get up to $2500

eTrade
  • Mobile traders
  • Traders looking for research and data
  • Investors looking for retirement planning guidance
$0 for fewer than 30 trades/quarter. $0
Get started securely through eTrade's website
1 Minute Review

E-Trade is best known for its user-friendly browser, desktop and mobile trading platforms and its extensive research and educational information. E-Trade may not have the lowest commissions compared to discount online brokers, but customers certainly get their money’s worth from E-Trade’s comprehensive offerings.

Pros
  • Extensive resources
  • Full banking services
  • Easy-to-use platforms
Cons
  • Limited access to ETrade Pro
  • Higher commissions than discount brokers
Current Promotion

60 days of commission-free trades with deposit of $10,000 or more

Final Thoughts

Investing is an amazing way to teach children the importance of money and how our economy functions as well. If you are looking for helpful, educational resources to explain these topics, you can start with how the stock market works.