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Investing for teens

How Can Your Teen Start Investing with Fidelity Youth Account

Money Smart Kids

Teaching kids about money and investing from a young age is one of the best things parents can do.  Think about it.  Time is a key ingredient to investment success because you let the magic of compound interest do its work and build wealth for you.

Kids have time!  Warren Buffett says that the biggest mistake parents make is not teaching their kids how to invest earlier.

I did not start investing until I was out of business school and was working for a Wall Street firm. I’m blown away by the fact that my 7-year old son already has an investment account!

He shows interest in investing and money management.  He watches his portfolio go up and down and has his own reasons for buying certain stocks.

My son gets really upset when Elon Musk tweets something stupid, and Tesla’s stock price suffers as a result.  He is also happy to see long lines in Starbucks and Apple stores.

Many younger investors have jumped into the stock market during the pandemic, scooping up GameStop or Dodgecoins.  But very few investment firms cater to kids under the age of 18.

Fidelity Investments, one of the largest discount brokers in the world and my personal favorite, has recently introduced Fidelity Youth Account – an investment brokerage account designed to help kids ages 13 to 17 invest, save and spend.

“Our goal for the Fidelity Youth Account is to encourage young Americans to learn through action and foster meaningful family conversations around financial topics,” said Jennifer Samalis, senior vice president of acquisition and loyalty at Fidelity Investments, in a statement.

It’s hard to teach kids about money without money.  Fidelity Youth Account is a great way to start your teen on a path of investing and help him create healthy money habits that will last a lifetime.

 

What is Fidelity Youth Account?

The Fidelity Youth Account is a teen-owned brokerage account that comes with a debit card. Please note, it is not a joint account or a custodial account.

The teenager is the owner of the account and has control over it.  They are the sole decision-maker, not the teen’s parent or guardian.  Also, they are the ones responsible for paying taxes.

The account is available for teens whose parents or guardians already have an existing Fidelity account.

Once the teen reaches the age of 18, the account can be converted to a regular brokerage account without the need to transfer assets to a different account or generate a new account number or login credentials.

 

Save and Spend

The account comes with a debit card and can be linked to Venmo and PayPal to make peer-to-peer payments easy.

It has no subscription fees, no account fees, no minimum balances, and no domestic ATM fees.

 

Invest

This brokerage account is the first of its kind.  Your teen can trade most US stocks, ETFs, and Fidelity mutual funds in their own accounts with zero commissions.

Fidelity Youth account also offers the ability to invest in fractional shares, which is an excellent feature because your teen can start investing with as little as $1.

There are some exclusions, however.  The teen cannot purchase third-party mutual funds, corporate bonds, municipal fixed income securities, certificates of deposit, and treasuries.  But if you ask me, these exclusions should not concern or limit a beginner investor.

 

Risk management

Investing is a risky business, and kids should learn the concept of economic loss at some point.  Better earlier than later, if you ask me. It’s better to make mistakes and learn the hard way with $100 than with $100,000.  The earlier they make those mistakes and learn from them, the better.

Fidelity has put some safeguards in place to protect your teen from substantial financial losses.  For example, high-risk activities like short selling, trading options, or on margins are not allowed.  Also, there is a $30,000 deposit cap per year.

 

Youth Learning Center

One of the key features of Fidelity Youth Account is access to a library of jargon-free, beginner educational content that explains complicated investment concepts in simple ways that anyone can understand.

 

How is it different from custodial investment accounts?

Fidelity Youth Account is a teen-owned brokerage account. It is owned by the minor, who makes all the investment decisions. This is unlike a UGMA or UTMA account where the custodian (parent) makes the investment decisions.

Therefore, it gives kids more independence than other custodial investment accounts.

The teens have complete agency and access to their account, although parents can monitor monthly statements and get alerts when their teen places a trade or uses the debit card.

 

How it works

First, you would need to open an online account.  Sit down with your teen and answer a couple of standard questions. You will be asked to upload an image of their Social Security card and one additional form of ID.

Second, download Fidelity mobile app.  After your child’s application has been approved, your teen will receive a notification with instructions to activate their account and log in.

Third, fund the account.  It can quickly be funded through your Fidelity account, mobile check deposit, bank transfer, or a payment app.  If teens are putting up some money, they can transfer the funds from digital payment apps like Venmo, PayPal, or CashApp.

 

Findings from Fidelity Youth Account Pilot participants

Before launching this product, Fidelity surveyed the participants of the Youth Account Pilot.  The responses that they’ve got are very encouraging and may just be enough to convince you if you’re still on the fence:

  • Nine out of 10 parents sat down with their teen and used the account as a teaching moment, and new relationship dynamics surfaced now that they have a shared investing language. Teens say “dinner conversations” now include the importance of saving, smart spending/budgeting tips, why investing is essential, sharing investing ideas, etc.
  • Almost three in four teens are now more confident in achieving financial success. Having a Fidelity Youth account has doubled their knowledge level for buying stocks and researching investments.
  • Teens report supplying nearly half of the money used to fund the account (44% on average), with the other half funded by family members.

 

Other options for kids

For children younger than 13, a general savings account is a great option to learn about saving and spending.

If your little one is interested in dipping his toes into investing, I am a big fan of BusyKid and Stockpile apps that work wonderfully together.

Both of my kids are younger than 13, and we have really enjoyed using BusyKid and Stockpile together to teach them about earning, saving, spending, investing, and donating.

If your teen has earned income through a job or self-employment, a custodial Roth IRA would be a great place to start saving and investing for the long term.

 

The bigger picture

Starting money conversations with your kids and giving them hands-on experience in investing is an excellent contribution to their financial success in life.

There are various tools to help you do that.  Fidelity Youth Account is one of them, and it could be a great option for many families.  I hope this post will help you decide if it’s the right choice for you and your teen.


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