Stock trading for teens seems like another headache parents don’t need. Isn’t parenting teens hard enough? Here’s the kicker.
Stock trading for teens is one of the best decisions parents can make because it helps set their teens up for financial success when they’re older.
Here’s what you must know about trading stocks for teens to see if it’s worth it.
What Is Stock Trading for Teens?
Stock trading for teens has the same potential as for adults. It might look a little different, though, depending on how teens own the account. If your teen wants to handle investments, you’ll need a joint or regular brokerage account.
With a joint brokerage account, you (the parent) and your teen own the account together. The teen can make decisions, but parents are there for guidance and can see all the transactions in real-time.
Some investment apps offer an option for parents to own a regular account and give teens an offshoot account, too, putting them in control.
On the other hand, a custodial account is an account the parent owns for the child until the child reaches maturity (usually 18). With custodial accounts, parents must make the transactions, aka invest on behalf of their teenager.
How Old Do You Have to Be to Invest in Stocks and Start Trading?
Teens must be at least 18 years old to have their own accounts. However, teens and even kids can invest at any age if a parent opens an account for them.
Each stock trading app has different age requirements for custodial or joint brokerage accounts, but there isn’t a minimum age a teen can invest until they want their own account without their parents on it.
What Is a Custodial Investment Account?
A custodial investment account is owned in the child’s name, but the parent manages the assets for the child.
The custodian doesn’t have to be a parent; it can be another guardian or even a grandparent, as long as an adult can take responsibility for the account. Kids and teens can use the funds from custodial accounts however they want once they reach maturity. Still, parents typically hope they use them for college, retirement, or other financial goals that will help them in adulthood.
A custodial account can be a UGMA or UGTMA, but the UGMA (Uniform Gifts to Minors Act) is the most common. With this account, anyone can contribute to the account, and there are no contribution limits.
Teens can have stocks, bonds, cash, mutual funds, and life insurance in a UGMA.
Choosing the Right Custodial Account For Your Teen
Like choosing an investment account as an adult, there are certain considerations you should make to ensure you set your teen up for financial success.
- Fees: Consider the cost of holding the account, as this will decrease the teen’s balance. On the other hand, if you open a custodial account at a brokerage you own an account, there might not be any fees. But always ask about trading fees, commissions, and monthly maintenance fees. Consider which fees will leave your child with the highest profits.
- Account Balance Requirements: Each investment app has different account balance requirements. For example, some require a minimum opening deposit, and others require ongoing minimum balances. Make sure you choose an account where you can maintain the requirements to avoid unnecessary fees or account closure.
- Investment Options: When you open an account for your teen, consider the investment choices you want. If you want something more aggressive, you want the ability to invest in stocks. However, if you’re looking for something more conservative or they can handle themselves, you may want to stick to bonds, ETFs, or mutual funds.
Benefits of Investing in Stocks for Teenagers
You might think teens are too young to think about investing or that it’s too risky, but here are some of the top benefits.
- Gain Essential Financial Literacy Skills: Letting teens take control of their financial future by investing young can help them gain essential financial literary skills. In addition, making investing a normal part of their life makes the transition seamless when they become adults.
- Financial Advantage and Headstart From Peers: The younger teens invest, the greater the headstart they have when they become adults. They’ll have money not only set aside but to grow for many years, helping them reach their financial goals. Whether teens invest to help with college expenses, retirement, or any other financial goal, they’ll have a solid foundation before they legally become adults.
- A Better Understanding of the Risks and Rewards of Investing: Investing young allows kids and teens to have many years to learn to take chances. Then, they’ll see the benefit of taking more aggressive risks and the consequences that can occur if things go wrong. This solid foundation of financial education will help them make solid investing decisions in adulthood, helping them reach their goals.
- Reach Financial Independence Sooner: The earlier anyone invests, the more money they’ll have earlier in life. Teens who invest are better able to reach financial independence. This may allow them to make empowering choices in life, such as retiring early or changing careers, doing what they love instead of what they have to do to make ends meet.
Best Apps for Teens to Start Investing in the Stock Market
Teens have a lot of options when learning to invest. Here are the top apps for teens to start investing.
1. Fidelity Youth Account
Parents with a Fidelity account can open a Fidelity Youth account and let teens take the reins. This jointly owned brokerage account puts teens in the driver’s seat, allowing them to trade stocks, ETFs, and Fidelity mutual funds.
- There are no minimum balance requirements
- Teens don’t pay any fees
- Parents have complete transparency on the transactions and activity, including real-time alerts
- Teens can buy fractional shares
- Access to the Fidelity Dedicated Youth Learning Center
- Teens can link their accounts to Venmo, which could encourage unnecessary spending
- Parents must have a Fidelity account
- Cash balances don’t earn interest
2. Acorns Early
- Anyone can invest spare change and make it grow
- It takes only a few minutes to set up an account
- Acorns charges fixed fees, so it’s easy to budget
- Teens can round up purchases for automatic investing
- The fixed fees are high compared to the amount most teens invest
- Only allows automated portfolios, teens can’t make their own investment decisions
- It can take a long time to reach their goals if they only invest spare change
Greenlight Max is the account that Greenlight offers for teens to invest. This allowance app puts teens in control, allowing them to save, invest, or spend their funds. Teens can invest in stocks and ETFs, and the account includes a debit card for easy spending.
- Teens can invest with as little as $1
- Teens can buy fractional shares
- No commissions
- Greenlight has exceptional parent controls that allow parents to limit where kids spend money or how much they spend
- Pays competitive interest rates and offers cash-back opportunities
- The monthly fee is high
- Offers limited investment options, as the assets must meet certain specifications for Greenlight to offer them
- Parents must link a custodial account for their brokerage for it to work
Step offers teens an introduction to cryptocurrency investing. Teens don’t have to wait until they are 18 to try their hand at this investment option. But, of course, teens need parental permission before opening an account.
- Step includes a Visa that teens can earn crypto back from instead of cash back
- Teens can invest with as little as $1
- Step provides educational content to teach about crypto
- Step doesn’t offer any advice to help with crypto investing
- Teens can only trade bitcoin on Step
Stash is one of the top personal finance apps offering an investing option. It’s great for beginners, making it easy for teens trying to learn the ropes. In addition, teens can have an investment and bank account, helping them budget for their goals.
- Teens can use a pre-built portfolio or try their hand at self-directed investing
- Teens can buy fractional shares
- The stock-back card allows teens to earn more stock shares when they spend money with partner brands
- Stash offers the option to invest in value-based investments
- Stash charges high monthly fees
- Stash only has four trading windows each day because Stash focuses on long-term investing
Ally offers stock and ETF investments with no commissions, which is great for teens. Teens can create their own portfolios or use the robo-advisor option and have a portfolio created for them. The app is user-friendly and allows teens to break into the investing world without getting overwhelmed.
- No minimum balance requirements
- No commission fees
- Ally offers a wide selection of investment options
- Ally provides extensive research and educational tools
- Uninvested cash doesn’t earn interest
- Doesn’t offer fractional shares
UNest is an investment account for families that allows teens to save for any goal, whether college, a car, or even retirement. What’s unique about UNest is family and friends can contribute to the account easily, and teens can earn rewards when they spend money at pattern companies.
- Parents and kids can set up recurring deposits
- UNest is easy to use since it’s a mobile app only, and most teens are savvy with technology
- Teens can use the funds for any purpose, including college
- UNest charges a flat monthly fee
- Teens must invest at least $25 a month
- UNest picks the investments; teens don’t have a say
EarlyBird is another mobile app for investing for teens. It’s set up as a UGMA account, so anyone can gift money to your teens. The gifting aspect of the app is fun because it allows friends and relatives to send a personalized video with the contribution, making receiving the money more personal and fun. EarlyBird has five portfolios to choose from, ranging from conservative to aggressive.
- EarlyBird automatically rebalances portfolios
- Teens only have to pick a portfolio type; they don’t have to choose individual investments
- Anyone can contribute to a teen’s investment goals
- EarlyBird charges a fixed monthly fee
- Teens can’t explore their investing options by choosing their own assets
- It’s a custodial account, so parents must handle the transactions
Stockpile offers a custodial account for teens. The app provides parents and teens with different log-ins so teens can handle their accounts and invest in the stock market. Of course, custodians must approve all trades, but the app gives teens freedom and empowerment in making decisions.
- The app is user-friendly for beginners
- Teens can buy fractional shares
- Friends and family can buy Stockpile gift cards to let teens invest how they want
- No trading fees
- Trades only execute at the end of the day, not in real-time
- Has limited investment options
- Stockpile charges a $75 transfer fee if you change brokerages
Getting Started With Stock Trading for Teens
It’s easy to get started with stock trading for teens. The largest step is to decide whether you’re ready to let your teen invest. The rest is simple.
Learn the Basics About Stocks
Help your teen learn about stocks before opening a brokerage account. While many brokerages offer educational opportunities, educating teens on the basics is important before letting them loose with their brokerage accounts.
Do Your Research
Help your teen find age-appropriate research that they can understand. Most stock apps for teens offer educational opportunities, but if you want to expose them to third-party research apps, look for one they are comfortable reading and comprehending.
Decide on a Budget
Help your teen decide how much of their money to invest. They should keep some money in a savings account and some for ‘fun money.’ Help them divide their funds so they have liquid savings, money invested for the future, and some money for fun now.
Purchase Your First Stocks
Once you’ve helped your teen make the important decisions, it’s time to buy their first stock. Depending on your teen’s comfort level, you might invest in one or several. But, again, starting slow and working their way up is best so teens can get comfortable with the concept.
Monitor Your Stocks
Don’t stalk the portfolios, but help your teen learn to monitor them occasionally. If the app you’ve chosen doesn’t automatically rebalance a portfolio, it’s important to rebalance it as the stock market and your teen’s life change.
Frequently Asked Questions
Stock trading for teens is a great way to break teens into investing at a young age. They’ll take these lessons into adulthood and hopefully make good investing decisions.
Can my 16-year-old invest in stocks?
If you are under 18, you can only make investments under the direct supervision of a parent, or legal guardian through a custodial account.
Who pays taxes on custodial accounts?
Kids are responsible for the taxes on their custodial accounts if they exceed the current thresholds. In addition, any amount over $1,100 that kids earn may be subject to Kiddie Tax, which means the remaining funds are taxed at the parent’s tax rate.
Are investing apps safe for teens?
Always do your research before assuming an investing app is safe. The safe apps are FDIC insured and use bank-level security, including two-factor encryption.
Why is it important to invest at an early age?
The more time your child’s money has to grow, the more they will have in adulthood. So whether your child goes to college or wants to invest in retirement at a young age, the earlier they start, the more money they’ll have.
The Bottom Line
It might feel like more work, but trading stocks for teens is a great idea as a parent. You’ll give your child a head start in their financial life, no matter where life takes them. In addition, it’s a great way to set up a financial foundation and learn the basics of investing at a young age.