Can you invest as a teenager?
Short answer
Yes, teenagers can invest, but usually with some help from a parent or guardian because minors cannot open investment accounts alone. Teens can invest through custodial accounts, where an adult manages the account until the teen is legally an adult. Starting to invest as a teen helps build money skills and grow savings over time.
What does it mean to invest as a teenager?
Investing means putting your money into things like stocks, bonds, or funds with the goal of growing it over time. For teenagers, investing typically means buying a small share of a company (a stock) or a piece of a collection of stocks (a fund) through an account managed by a parent or guardian. Since minors cannot legally sign contracts on their own, adults help by setting up a custodial account. This account belongs to the teen but is controlled by the adult until the teen reaches the age of majority (usually 18 or 21 depending on the state). Investing as a teen means your money can grow through the company’s success or interest payments, rather than just sitting in a savings account.
How does investing work for teenagers? (With a simple example)
Suppose you are 15 and want to invest $100 you saved from a summer job. You ask your parent to open a custodial brokerage account in your name. They deposit your $100 and help you choose a stock or fund to buy. For example, you buy shares in a company that sells video games. Over a year, if the company grows and the stock price increases, your $100 might turn into $110 or more. If the company pays dividends (a portion of profits), you could get small payments adding up over time. When you turn 18, the account legally becomes yours, and you can manage it yourself.
Why does investing matter for teenagers?
Investing early is a powerful way to build money skills and take advantage of time. The longer money stays invested, the more it can grow thanks to compound growth, which means earnings from investments generate their own earnings. Starting as a teen helps you learn how the stock market works, how to research companies, and how to make decisions about money. It also helps build good habits like saving regularly and thinking long-term. Even small amounts invested now can grow into significant savings for college, a car, or future goals.
What types of investments can teenagers make?
Teenagers can invest in stocks, exchange-traded funds (ETFs), and bonds through custodial accounts. Some platforms even allow teens to learn about investing through simulated trading without real money. Common investments for teens include:
- Individual stocks: Buying shares of companies you believe in.
- Index funds or ETFs: Buying a collection of stocks bundled together, which spreads risk.
- Savings bonds: Government-backed bonds that earn interest over time.
Because teens cannot directly open accounts on many platforms, custodial accounts are the standard way for teens to invest in these options.
What are custodial accounts and how do they work?
A custodial account is an investment account opened and controlled by an adult for the benefit of a minor. The adult legally manages the account, but the money belongs to the teen. When the teen reaches adulthood, control of the account transfers to them. Two common types of custodial accounts in the US are:
- UGMA (Uniform Gifts to Minors Act) accounts
- UTMA (Uniform Transfers to Minors Act) accounts
These accounts differ in what assets they can hold, but both allow teens to own stocks, bonds, and funds. Custodial accounts do not allow the teen to trade alone until legal age but let them learn about investing with adult supervision.
What other terms do people confuse with investing?
People sometimes confuse investing with saving or trading.
- Saving means putting money aside safely, usually in a bank account, with little risk but low growth.
- Trading means buying and selling stocks frequently to try to make quick profits, which can be risky and complicated.
- Investing is about putting money into assets with the hope of growing it over time, usually with a longer-term view.
Also, some confuse custodial accounts with joint accounts or retirement accounts. Custodial accounts are for minors, joint accounts involve two adults, and retirement accounts like IRAs require the account holder to be an adult.
How can you start investing as a teenager?
- Talk to a parent or guardian: Since you need an adult to open a custodial account, start by discussing your interest in investing.
- Choose a brokerage or investing platform: Look for one that offers custodial accounts with low fees and educational resources.
- Learn the basics: Study simple investing concepts to understand what you’re buying.
- Decide how much to invest: Start small with money you won’t need immediately.
- Pick investments: Consider diversified options like ETFs or stocks of companies you know.
- Monitor and learn: Keep track of your investments and learn from changes.
- Prepare for adulthood: When you turn 18 or 21, be ready to take control of your account.
For more detailed steps and platform options, see How to start investing for teens and Can Teens Invest on Robinhood?.
What should you do next if you want to start investing?
Begin by opening a conversation with a trusted adult who can help set up a custodial account. Together, research investing platforms that allow teen accounts. Take time to learn about investing basics through reliable sources or courses designed for teens. Consider starting with a small amount to practice, then gradually increase as you become more comfortable. Remember to keep investing goals realistic and focus on learning rather than quick profits. For more guidance, check out related articles like Can you start investing at 16 and Investing rules and regulations for teens.
Frequently asked questions
Can teenagers open investment accounts on their own?
Generally, teenagers cannot open investment accounts by themselves because they are minors and cannot legally sign contracts. An adult must open a custodial account that they manage until the teen reaches legal adulthood.
What is the minimum age to start investing in the US?
While teens can start investing through custodial accounts at any age, direct investing without an adult usually begins at 18, the legal age for contracts. Some platforms have specific age requirements for custodial accounts.
Can teenagers invest in apps like Robinhood or Fidelity?
Teens can invest on platforms like Robinhood or Fidelity only through custodial accounts managed by an adult. Some platforms have special accounts designed for teens, requiring parent or guardian approval.
What is the difference between a custodial account and a regular investment account?
A custodial account is managed by an adult for a minor, with the assets owned by the minor but controlled by the adult until adulthood. A regular account is owned and controlled by an adult alone.
Are there risks to investing as a teenager?
Yes, investing always carries risks, including losing money if investments go down. Teens should start with small amounts, diversify investments, and view investing as a long-term activity to reduce risk.
How can investing as a teen help with financial skills?
Investing teaches teens about money management, risk, patience, and research. These skills are valuable for making smart financial decisions throughout life.