Learning to invest is important. We all know that. So, how much money would you have if you started investing in your teens? We can’t turn back time, but we can turn them onto investing for teens and immerse them in that world.
They need to learn how to do it, too, so they’re prepared to grow their net worth as they get older. Allowing them to experiment with investments is a great way to teach them how.
In this article, I'll review some of the best investments for teens. This should help your teen learn about investing without a lot of risks.
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1. Have Them Open Their First Checking Account
One of the best ways to get your teenager to start getting comfortable with the idea of investing is to have them open up a checking account. It will teach them financial responsibility by using a debit card and checks if they need to, and they'll have to manage their balance. This is a core foundation for being able to start investing. So setting your child up with a checking account is a great option.
Axos Bank now offers the Axos Bank First Checking account, which provides financial freedom with the security of a joint checking account. It’s designed for teenagers between 13 and 17 years old, and you can currently earn a 0.25% APY on the balance.
There are no monthly maintenance fees, no overdraft fees, and no non-sufficient funds fees. You have daily transaction limits of $100 in cash or $500 on the debit card - for parents, this is a nice feature.
You also get up to $12 reimbursed per month on domestic ATM fees. So, if your teen happens to use an ATM that's out of the network, some of those fees, up to $12, will be reimbursed.
I like the Axos Bank First Checking account because it has features many of the best checking accounts have nowadays. Only it’s designed for teenagers between 13 and 17. Make sure you read our full Axos Bank review for more information.
2. Open a Savings Account for Your Teenager
Some of you may roll your eyes when I suggest a savings account. But, this is a great way to prepare for investing without the stress of researching stock investment for teens. You don’t even have to have an understanding of the stock market.
Additionally, many companies need a minimum to invest. And the best way to start investing is to make sure you have all the money you need to get started. Most teens end up opening a savings account at the same bank their parents use. While this makes life a lot easier, there are other options.
The main benefit you'll see when you encourage your teens to choose an online bank is you cant easily make a withdrawal. This can prevent your teens from impulse purchases. Which not only can derail their plans for investing but will also be the cause of a lot of regrets.
Having money in a place where it’s not easily accessible is very much like having it invested in stocks or bonds. And it will give your teenager a taste of the future. I’d recommend looking at the . They require no minimum deposit to get started. There are also no monthly maintenance fees, meaning teens won’t lose any money saved to unnecessary bank fees.
3. Teach Them To Invest With a Roth IRA
One of the best ways for teenagers to start learning about investing is by setting up a Roth IRA. You have to invest in a Roth IRA with after-tax income. So, teenagers must have a job before they can invest in this type of IRA.
The type of jobs most teens hold during high school gives them a low tax rate, too. This makes a Roth IRA one of the perfect investing options for teens, and they’ll learn how to save for the future.
Different investment firms will have different minimums needed to open a Roth IRA. So it’s essential you help your teen find the best option for them. One option is Vanguard, which has a minimum investment of $1,000, while Fidelity requires $2,500.
And by investing now when they’re still young, teens can see amazing benefits by the time they retire. By then, they’ll be ready to start taking money from their investment accounts.
4. Tell Your Teenagers To Try Out Index Funds
Most teens love instant gratification. And learning how to invest isn’t always appealing. So to ensure they remain engaged, allow them to have more control over their investments. While tech stocks are fascinating for many teens, index funds offer a few other benefits.
Investing in a single company causes you to feel every high and low the company experiences. So instead, encourage your teen to invest in index funds.
They'll still get exposure to their favorite companies. They just won't be tied to one single investment, as the experts at U.S. News discuss.
This is important. And it can make a huge difference, not only in your teen’s success but also in their attitude towards investing.
If you're not savvy about how to diversify your stocks, that could also be an issue. Can you offer your teen advice to prevent them from dealing with significant stock problems in the future? If not, definitely consider talking to them about index funds.
I recommend putting at least half of your invested dollars in index funds. This way, your teen can feel what it’s like to invest without all the risk.
5. Dip Their Toes in Stocks
There’s more risk investing in individual stocks than in a portfolio holding index funds. But many teens love the idea of investing in their favorite companies and owning a share. But before you allow your teen to invest in a company, it’s important to talk to them about how to research stocks.
Investing gives you a heightened awareness of what’s happening in the economy around you. When they have a share of a company, they’re more likely to stay on top of what’s happening. This helps your teen remain abreast of possible problems.
One problem with investing is that many favorite companies often have high-priced stocks. It’s a good idea to talk to your teenager about how they’ll save money to invest in their chosen company.
This is also an excellent time to talk to them about the benefits of having money set aside in a savings account. They’ll need to think about how to use that money to buy the stocks they want when they’ve done all their research.
Public makes it easy for anyone to invest in stocks, including stock investment for teens. You don’t need to have a ton of money, and you don’t even need to have investing experience.
Public allows investors to buy slices of stocks and doesn’t charge trade commissions. It also scrapped the controversial practice of generating revenue from payment for order flow (PFOF) and instead included an optional tipping feature on trades as a means of offsetting its costs.
It’s as easy as downloading the app and opening an account. There’s no minimum to open an account, so it’s great for small investors.
Learn more in our Public Review.
6. Get Them to Invest in a Business
For a more exciting approach to investing, consider your teens investing in a business. But as a parent, be careful. Make sure nobody tries to get your teen to invest in a business only designed to take advantage of people. This happened to me in college with a shady “t-shirt for credit card application” business.
With proper vetting, though, investing in a business can be very exciting. Whether they decide to open their own business or have researched businesses owned by family members or friends, investing in a business makes everything personal and is an excellent way for your teen to want to learn about business and investing quickly.
While I do believe failure is a great way to learn, you want to make sure your teen isn’t setting themselves up for failure by investing in a business that isn’t sustainable.
I think the cost of investing in individual businesses can be too high for some teenagers. So you, as the parent, need to be willing to act as the voice of reason when necessary.
This can be difficult. But making sure your teenager is investing responsibly is essential and will allow you to help protect them before they make a huge mistake.
7. Teach Them About CDs
Certificates of Deposit aren’t nearly as attractive to most teens as investing in the stock market. But they also aren’t nearly as risky. This is why you need to encourage your teens to consider investing in CDs.
One thing that makes CDs one of the best investments for teens is that they’re FDIC insured. This will reduce the stress that cautious teens may feel about investing.
There are many different terms you can choose from when getting a CD. Also, longer terms will allow you to enjoy higher rates on your money.
This is an excellent lesson for teenagers, especially as they see how investing money for extended periods will earn them more, but taking the money out of the account will penalize them.
Since there are a few different payment options you can choose from when you open a CD, teens will be able to feel like they have a little control over their money.
And they may be more interested if they set up a CD to pay them their interest via a check or direct deposit. Of course, I think that this is a great time to explain compounding interest and its benefits, too.
8. Open a Custodial Traditional IRA
Anyone who has earned income can open a Traditional IRA. This means your teenager can fund one, even if they only have a summer job or a short part-time job during the year.
Teens can invest up to $5,500 per year in a Traditional IRA, and the money can be placed into a self-directed brokerage account. This will allow them to control their money and start investing it.
Traditional IRAs have the benefit of allowing teens to enjoy a tax deduction on the money they contribute to their accounts. For most teens, this isn’t much of an issue, as they probably won’t be making so much money they need to worry about meeting an income threshold. But if they earn $6,500 or more in 2018, then a Traditional IRA makes a lot of sense.
One advantage your teen will enjoy when they open a Traditional IRA is that they provide tax-deferred accumulation of their investment earnings. This can offer lifelong benefits as their earnings compound, which is why so many teenagers can really benefit from opening this type of IRA. To make sure you choose the right one for your teenager, you will want to check with a professional.
Related: Best Custodial Accounts
9. Set Up Uniform Transfers to Minors Act Accounts
Uniform Transfers to Minors Act (UTMA) accounts are great options if you’re looking to help your teenager start investing. They can be set up with a wide variety of investment accounts.
This allows you to try out different investment options so your teen can experience different types of investing. The money can also be used for any purpose, including education.
These accounts are made for the benefit of a minor and have to be controlled by a custodian, who is usually the teen’s parent. When the child reaches the state’s age of majority, they can have access to the money.
The income made from investments in the account will be taxed at the child’s rate and will vary depending on their age and whether or not they are a student.
I think UTMA accounts are an excellent option for teenagers who want to start investing, as they allow them to have control in the investment process. But the parents have the final say in changes made to the account. UTMA accounts can be held in banks, with investment brokers, and even with mutual funds.
There are many great options for teens to start investing, especially when their parents are involved and willing to offer them the support and guidance they need when making money decisions.
Which type of investment you choose will depend a lot not only on how much your teenager has to invest, but also on their risk tolerance and how involved they want to be with their investments.
What do you think are the best investments for teens, and have you helped your teenager open any type of investment account?