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Investing for Teens: How to Start, What to Know, and Why Do It

If you’re ready to plunge into the world of investing for teens – you’ve come to the right place. Today, we’re breaking everything to know about the benefits of investing, where to start, and what to look for. We’ll also review how parents can help their teens invest and which investment options to consider. Without further ado, let’s get into it.

The Benefits of Investing for Teens

When it comes to investing at a young age, the benefits are plentiful because there is so much power to investing early. When kids put away their money at a young age, they have a significant advantage over their peers. The advantage isn’t solely in the funds earned, but also in the knowledge gained.

Building Wealth

Most investors have experienced declines and busted bubbles, and hearing about these things might make the market seem unpredictable. However, highs and lows, crashes and growth – that’s all just part of the natural cycle.

That said, looking at the market and its long and convoluted history, it still produces a 10% yearly return. By taking advantage of compound rates and the ability to invest early on, your teens can reap the benefits in the long run.

Being Empowered and Independent

When they start investing at a young age, kids will have the time and opportunity to learn about investing. Yes, they will probably make some mistakes, but they can learn and grow from them.

Giving your children the option of being in control of (a certain part) of their finances will make them feel empowered. It’ll become an incredible learning opportunity and allow them to be more comfortable with complex financial topics.

Investing for teens gives them the ability to earn their wealth slowly and over time. What’s more, it allows them to set themselves up for a better financial future, one in which they can more easily accomplish their goals and dreams.

Battling Inflation

In 2022 alone, the average rate of inflation was 8% in the US. All of the money that wasn’t invested was essentially lost as money simply isn’t worth what it used to be. By carefully investing and saving, your teens can make their money last for a longer time.

How to Invest as a Teenager

Know Your Basics

Before taking the plunge into the stock market, learning how it works is crucial. Parents are typically the first line of education and can help steer their teenagers the right way. 

Parents and teens should ideally come together to read and learn as much as they can about the theory of the stock market. What’s more, read about what mistakes and pitfalls to avoid, what practices to follow, and more.

If you don’t know where to start, we recommend looking into investing books for kids or better yet, trying out an investing app like BusyKid

Find Your Identity

As they start learning more about investing for teens, your kids will probably discover what type of investor they are. They might be risk-taskers or prefer to take their time and build their portfolios slowly and carefully.

When it comes to learning how to invest as a teenager, they will probably go down the road of being either active or passive investors. What’s more, it is at this time when they’ll learn about their risk tolerance.

No matter what their investment identity is or their risk tolerance, as long as they take their time and research different opportunities and options, it’ll be a step in the right direction.

Diversify

One of the most important things to know about investing is that every investment carries some risk. There are no risk-free investments and you should prepare your teens to handle it if something doesn’t go their way.

That said, one of the best ways to minimize risk is through diversification. By choosing different types of investments, and investing in companies of different sizes and within different industries, you can minimize risk.

Diversifying is built on the principle of “not putting all of your eggs in one basket” and it’s a way to balance out wins and losses.

How Parents Can Help With Investing for Teens

As we said earlier, parents play a crucial role when it comes to investing for teens. 

If you are already an experienced investor, encourage and help your teens along on their journey. If not, learn alongside them.

You should also encourage them to explore their investment identity and find what interests them. Keep in mind that they’ll probably have a long way to go and might be able to afford to take on a bit more risk.

What’s more, you can help your teens set up a brokerage account, but avoid doing it for them. You want your teens to take ownership and initiative when it comes to investing.

If you can, you can also offer to make a gift deposit into their brokerage account or to match a portion of their future deposits. 

Teens have an incredible advantage thanks to compounding, which is why it’s better to get them started sooner than later.

Investment Accounts for Teens

If your child is under 18, you can help them get started on their investment journey with an investment or custodial account. You can open the account in their name, and save or invest on their behalf. 

Once your teen reaches the age of maturity, which could be 18 or 21, they can take full control of the account. If you deposit money into this custodial account, it’s considered to be an irrevocable gift.

BusyKid: The Best Investing App for Kids

Getting your kids, no matter their age, interested in investing might seem like a challenge at times. But with a tool like BusyKid by your side, you can make the entire process more entertaining, engaging, and safe.

At BusyKid, we give you the platform to help your kids start investing for as little as $10. What’s more, we’ll do it all without charging commission when you buy or sell stocks.

The investing for kids option is a core feature of BusyKid as we want to help set up both kids and parents for a better future. So if you want to start investing for teens and kids and need someone to help you do it, download BusyKid today!

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