How To Encourage Your Teens (Under 18) to Invest in Stocks

You've probably been preparing your children academically, socially, and morally for their future lives as adults.

If you are like most parents, however, one of the things you are missing is financial literacy preparation for your children -- especially relating to basic investing skills.

This is a problem because as soon as your young adults leave the house, perhaps to go to college and hopefully to start working, they are suddenly expected to know how to manage their financial affairs. 

The truth is that there are no financial or investing training wheels for your young adults when they leave the nest. 

Establish a Custodial Brokerage Account for Him & Seed it With Cash

The first thing you should do to encourage your teen to invest in stocks is to establish a custodial brokerage account for him. The custodial account is necessary because Minors are not allowed to own stocks, mutual funds, and other financial assets outright. In some states, minors are defined as people younger than 18 years old, and in others they are defined as people younger than 21. For more information on custodial accounts, go here.

Remember that your teen would own the assets in the custodial brokerage account, but you would control the investments in it (hopefully, with with his help) until he is longer a minor. Important considerations to choosing a custodial brokerage account include:

  • Looking for no stock trading fees – you should find online brokers that charge $0 to buy and sell stocks.

  • Looking for low balance stock trading accounts – make sure the online broker does not require you to maintain a sizeable minimum balance in a trading account; there are many that offer $0 minimum balance.

  • Look for brokers that allow for fractional shares – if you want to invest as little as $1 in reputable companies with high stock prices, you can only do so if the online broker allows you to buy fractions of a share stock.

Here are some online brokers you may want to investigate:

  • Charles Schwab

  • Ally Invest

  • E-Trade

  • Fidelity

  • Interactive Brokers

Seed the Account With Money

If you have the money, seed the account with about $200 or more to get your kid started in investing. This money should be separate and apart from any allowance (if any) you may give him. After establishing the custodial brokerage account and seeding it with some cash, you can gift the whole account to your child for him to play with. Alternatively, you can buy a few shares for him and see if he has an interest in watching its value go up and down. Remember that the goal here is to spark his interest but he won’t be interested unless there is a financial incentive.

Set Up a Dummy Portfolio for Him

Setting up a dummy trading portfolio is another to get your teen interested in investing without taking much risk. There are a few sites that will allow him to set up stock market games in which he compete with his friends to see who has the highest profits in hypothetical portfolios you create with fake dollars. The sites tally up the daily portfolio values and rank them by usernames. Here are some dummy trading portfolio portals:

Introduce Him to Online Resources

You may think that there are many investment websites that appeal to teen investors but this just isn’t so. However, the typical investment education website does not address some of the basic issues faced by young investors. For one thing many of the free investment education websites don’t do a very good job of providing simple explanations of investment fundamentals. In addition, some of the investment guidance provided by these sites don’t consider the fact that teen investors have very little money to invest in the first place.

We can only recommend a handful of sites that can present basic investment information in a digestible manner:

TeenVestor. This is the only website on the Internet created just for teen investors and we are not saying it just because we created it. You simply will not find any other websites that cover such a wide variety of topics specifically addressed to teen investors It has garnered kudos from Wall Street Journal, Morningstar, Barron's and many others. It is a portal to teach investment basics for teens and beginning investors. In existence since 1999. TeenVestor also runs a course to teach teens how to become stock investors called: TeenVestor Stock Certification Course.

Investopedia. Investopedia has an education-focused website that covers beginning and advanced investors. The web site has a great dictionary of all basic investment terms that are well defined complete with relevant articles. Investopedia has been a trusted source for investing information for many years.

Investor.org .One of the goals of the Securities and Exchange Commission (SEC) is to protect American investors against fraud. To do so, it provides some investor education covering stocks, ETFs, and other investments through investor.gov. The website also includes financial calculators to help young investors understand such things as compound interest and mutual fund fees.

Sign Him Up for an Online Stock Course

After giving your teen investor the carrot of seeding his custodial brokerage account with cash, we think it’s important to sign him up for a paid online stock course.

You can find some courses at sites like Udemy, LinkedIn Learning, Coursera, and many others. However, you will have to carefully sift through the courses to find the ones that would be appropriate for teens and that is comprehensive enough to give young investors the basic skills they need to begin investing in stocks. Many of the courses you may encounter, however, even the beginner courses, are too advanced for very young investors.

Some online brokers have developed programs on their sites to teach basic investment concepts but once again, some of these may be inadequate mainly because they are too advance for kid investors.

An excellent program for teaching kids stock investing is the TeenVestor Stock Certification Course. Designed for kids ages 13, this self-paced course uses text, video and audio lessons to teach the basics of stock investing. This course was created by TeenBusiness Medial which is the owner of CustodialAccounts.com. Here is a link to the course.