INVESTING FOR KIDS AND TEENS : HOW TO GROW WEALTHY KIDS
Updated: 5 days ago
TL:DR
We know you're always thinking about your kids' futures, and we're here to chat about an important aspect that often gets overlooked – investing for your little ones. Whether it's saving up for college, a dream wedding, or even their first home, starting early can make all the difference.
The Power of Early Investing for Kids
We get it – the idea of investing might sound a bit intimidating. But fear not! Investing for your kids is like planting seeds in a garden. The earlier you start, the more time those seeds have to grow into mighty oaks. With the magic of compound interest, even small contributions can turn into substantial amounts over the years.
Educate Before You Invest
But before we jump into specific accounts, let's cover some basics. Investing is essentially putting money into something with the expectation that it will grow over time. Teach your kids that it's a lesson in delayed gratification, teaching them that good things come to those who wait. (Check out this fun platform to teach your kids how to invest).
For kids, the goal is long-term growth, so they can benefit from the compounding effect. As with any investment, there are risks involved, but with careful planning and a diversified approach, you can help mitigate those risks.
You can also start with the basics – stocks. Simplify it by using relatable examples. Explain that when they buy a stock, they're essentially buying a tiny piece of a company. To put it in perspective, relate it to something they know, like owning a share of their favorite pizza place. When the pizza place does well, so does their investment! Watch this fun explainer video.
How to Invest for Kids: From Allowance to Assets
Investing for kids might sound like a complicated Wall Street maneuver, but it’s actually pretty straightforward. Here’s how you can get started:
Types of Investment Accounts for Kids
Custodial Brokerage Accounts: One of the most common ways to start investing for your child is through custodial brokerage accounts, such as the Uniform Gift to Minors Act (UGMA) or Uniform Transfer to Minors Act (UTMA) accounts. These accounts allow you to manage and invest money on behalf of your child until they reach the age of majority (usually 18 or 21, depending on the state).
Pros:
Flexible investment options
Can be used for any purpose
Transfers to the child at a certain age
Cons:
Limited control for parents once the child reaches adulthood
Tax implications for investment gains
529 College Savings Plans: If you have your eyes set on funding your child's education, a 529 plan could be your go-to choice. These state-sponsored plans offer tax advantages when the funds are used for qualified education expenses.
Pros:
Tax advantages
Can be used for various education expenses
Flexibility to choose among different state plans
Can be transferred to another eligible family member
Cons:
Penalties for non-educational use
Limited investment options
Custodial Roth IRA for Kids: Yes, you read it right – even kids can have their Roth IRA! As long as your child or teen has earned income, this account allows your child to invest their earned income, and the best part? All qualified withdrawals are tax-free.
Pros:
Tax-free withdrawals for qualified expenses
Teaches kids about investing and retirement planning
Cons:
Contributions are limited to the child's earned income
Withdrawals may face penalties if not used for qualified expenses
Join our next free class with financial experts on how to start investing for your kids!
How To Teach Kids How To Invest
Now that you’ve set up an investment account, how do you actually teach your kids what it all means? Here are some strategies:
Make It Relatable – Kids are more likely to be interested in investing if it connects to their world. If they love Apple products, explain how they can own a piece of Apple through stocks. If they’re into sneakers, introduce them to Nike’s stock.
Use a Stock Market Simulator – Before putting real money on the line, let kids practice investing with a simulator. KidVestors offers a stock market simulator that lets kids test the waters without the risk.
Turn It Into a Game – Challenge your child to “invest” in different companies and track their progress. Offer rewards for good investment decisions.
Talk About Compound Interest – Explain how money grows over time. Show them that a small investment today could turn into a massive sum when they’re older. A fun analogy? Tell them it’s like planting a money tree—the sooner they plant it, the bigger it grows. You can even use our compound interest calculator as part of your discussions!
Lead by Example – Kids learn best by watching. If you invest, share your journey with them. Let them see how stocks go up and down and why patience is key.
Setting Realistic Goals – Help your kids set achievable financial goals. Whether it's saving for a new video game, a bike, or even their first car, having a goal in mind can motivate them to contribute regularly. This not only instills a sense of responsibility but also teaches the value of delayed gratification.
Investment Strategies for Kids
Now that we've covered the different types of accounts, let's talk about investment strategies. Diversification is key! Spread your investments across different asset classes to reduce risk. Consider a mix of stocks, bonds, and even some cash. If you're not comfortable picking individual stocks, no worries – there are plenty of low-cost, diversified index funds and exchange-traded funds (ETFs) that provide broad market exposure.
Teach your kids about the importance of patience and staying invested for the long haul. The stock market may have its ups and downs, but historically, it has shown a positive trajectory over time.
How To Make Investing Fun for Kids
Investing doesn't have to be a boring topic for your kids. Make it engaging and educational. Create a "money jar" where they can contribute a portion of their allowance or gift money. Track their investments together, discussing the ups and downs as opportunities for learning. Thankfully, KidVestors handles can also handle the fun part!
We believe that learning about money should be engaging, interactive, and—most importantly—fun! That’s why we offer a variety of tools to help kids grasp investing concepts in an exciting way:
Free Stock Market Guide – A beginner-friendly guide that breaks down investing into simple, easy-to-understand concepts.
Stock Market Simulator – A risk-free way for kids to test their investing skills and learn how markets work.
Real Estate Simulator – Because investing isn’t just about stocks! Our real estate simulator introduces kids to the world of property investing.
Gamified Learning – With challenges, leaderboards, and cash rewards, we make financial education feel like a game.
The Benefits of Investing for Kids
So why start early? Because time is money—literally. Here are some key benefits:
Compound Growth – The earlier kids start investing, the more time their money has to grow. A small investment today could be worth thousands (or even millions) when they retire.
Financial Literacy – Teaching kids about investing at a young age helps them develop financial smarts that will serve them for life. They’ll learn how to budget, analyze risk, and build wealth.
Wealth Building – Investing isn’t just about making money—it’s about creating financial security. By starting early, kids can set themselves up for a future where money isn’t a constant stressor.
Patience and Discipline – Investing teaches kids delayed gratification. Instead of blowing their money on impulse buys, they learn to think long-term.
Ownership Mentality – Investing shifts the mindset from consumer to owner. When kids realize they can own shares of their favorite brands, they start seeing money differently.
Investing for kids isn’t about making them the next Warren Buffett overnight. By starting early, explaining the basics of investing in a simple and relatable way, and choosing the right investment accounts, you're setting them up for a lifetime of financial success. Remember, it's not about timing the market but time in the market. So, get your kids involved in the process, and watch their financial future blossom.
Get started with KidVestors today - Enroll Your Students
INVESTING FOR KIDS AND TEENS
FREE INVESTING CLASS FOR PARENTS
Enroll your student in our financial literacy course and app here.
If your school or group is looking for a finance curriculum to teach your students about how to manage money, start here to learn more on how to bring KidVestors to your classrooms!
Parents, teach your kids money and make money conversations normal in your household by visiting here.
Comments