I get asked a lot about ways to get started investing in high school. That's a tough question, because I'm a firm believer that you should start investing as early as possible.
However, it's really a bad decision for minors to own stocks. I think if you're going to teach children how to invest, you need to start with how investing via a low cost index fund is the way to go (just look at Warren Buffett). Only then should you teach them to look at individual stocks.
So that doesn't mean that you can't get started investing in high school! It just means getting them started the right way investing in high school!
If you're not in high school, look at some other articles in the series:
- How To Get Started Investing In College
- How To Get Started Investing In Your 20s After College
- How To Get Started Investing In Your 30s
Here are some things to consider if you're 16 and want to start investing.
The Legalities of Investing as a Minor
First, I'm not a lawyer or tax advisor, so consult all the applicable professionals before doing anything related to opening accounts. I can, however, tell you the following truths:
- Minors canown stocks in their names (contrary to popular belief).
- Minors cannotopen a brokerage account, because they cannot sign legally for themselves and transfer agents cannot accept the signature of a minor to complete any transactions.
- Minors canhave custodial accounts (UGMA accounts) opened in their name.
- Minors canhave a Roth IRA if they have earned income.
This may sound counterintuitive, but realize that there is nothing to prevent a minor from owning a stock. However, the minor cannot complete the transaction on their own — they have to have their legal guardian do it. If the stock is in the minor's name, neither the guardian nor the minor can conduct any transactions with it.
That's why UGMA accounts were created. The assets (stocks) held in the account are in the minor's name, but the trustee listed can conduct transactions on the minor's behalf until they are of legal age to conduct transactions for themselves.
Related:The Best Custodial Accounts To Start Investing
How can minors open a Roth IRA then? Well, technically the Roth IRA is just an account . . . so there doesn't have to be any investments made. The only qualifier for a Roth IRA is having earned income that meets the specified adjusted gross income (AGI) limits. Just like the UGMA account, a parent or guardian must act as the custodian until the child is of age. The other great part of the Roth IRA is that it doesn't technically matter who contributes — so a parent or other relative could also contribute to the Roth IRA on the child's behalf.
The Real Aspect of Investing in High School
Skipping the legalities, most teens just want to experience investing. Parents and teachers can help with this.
At Home
At home, if children have accounts set up in their name, start letting them see the investments and even having a say in the decision-making process. This can be a great teaching opportunity, and can also teach real responsibility. Letting teens start to handle their own investments will set them up for long-term success.
If they don't have an account, maybe now is the time that you open one for them to invest in. Let them learn about the stock marketand actualinvesting.If they have some money saved up, you can open them a UGMA account if they have no income, or a Roth IRA if they have a summer job that paid them W-2 or 1099 earned income.
Then, let them research and invest in a company or index fund of their choosing. Help them monitor their positions, and teach them about dividends, capital gains, and taxes.
Finally, I also recommend that parents share their own investment accounts with their children and explain to them what they are, and how they work. Show them your 401(k), IRAs, brokerage accounts, and anything else you have. Information is power, and teaching your kid how to invest early is a smart move.
Investing in High School
We've highlighted here colleges that have hedge funds, but now, many high schools are opening funds for their students to learn and invest in. Plus, FINRA has a 4-H program that is designed to educate high school students on investing, stocks, and other aspects of personal finance.
Programs like these can get your high school student starting to think about investing, and do it in a way that is legal, and useful!
Watch The Video
My Story
I know when I was in high school, my parents showed me and gave me access to several UGMA accounts that were opened in my name by my grandparents when I was a baby. For the most part, that money sat there and my parents didn't do anything with it. However, they taught me how to track the performance of the funds, and helped me set up Quicken for the first time. I was hooked on personal finance ever since.
I strongly recommend getting starting investing in high school, even if you only have $100 to start. Understanding by doing it is so important. It also put me on the track to financial independence in my 30s.
The earlier you can start investing, the better it will be for your children to learn how to build wealth.
What are your thoughts on getting started investing in high school?
FAQs
High school finance teacher Mr. Willson says teens should start investing early to set themselves up for the future. “The earlier you start investing, the longer it has to compound, and so the further you'll be ahead. The longer you take to start investing for the future, the less time you have.
Should you start investing in high school? ›
High school finance teacher Mr. Willson says teens should start investing early to set themselves up for the future. “The earlier you start investing, the longer it has to compound, and so the further you'll be ahead. The longer you take to start investing for the future, the less time you have.
How can I legally invest at 16? ›
The easiest way for a person under 18 to trade stocks is for an adult to open a custodial account with a brokerage on behalf of a child and then invest in stocks on the child's behalf, with the child directing the investments if they want.
How much money should a 16 year old have? ›
How to Set an Allowance for Kids. A commonly used rule of thumb for paying an allowance is to pay children $1 to $2 per week for each year of their age. Following this rule, a 10-year-old would receive $10 to $20 per week, while a 16-year-old would get $16 to $32 per week.
At what age should you start investing? ›
Spending every penny you earn when you're young is tempting, but investing at 18 or even earlier puts you far ahead of the game later in life. You could potentially grow your investments much more, and you'll have a better understanding of the financial system.
How much money should a 15 year old have? ›
Average allowance for kids and teens in 2023
| Age | Allowance |
|---|
| 13 years old | $13.01 |
| 14 years old | $14.96 |
| 15 years old | $17.09 |
| 16 years old | $20.54 |
11 more rowsJun 27, 2023
Investing can help you turn your money into more money, even when you start small. A $1,000 investment—whether you pay down debt, invest in a robo-advisor, or get your 401(k) match—can help lay the foundation for a prosperous financial journey.
Is investing at 15 illegal? ›
If you are under 18, you cannot own stocks, mutual funds, and other financial assets outright. As a minor, you can make investments only under the supervision of your parent (or an adult) through a custodial account.
Is investing before 18 illegal? ›
What Is the Minimum Age to Invest? To recap: The minimum age to invest in stocks and other investments completely on your own is 18 years old. However, minors are allowed to make investment decisions within a joint brokerage account shared with an adult.
Why is investing under 18 illegal? ›
Although there are certain restrictions, no laws prohibit people from investing when they are underage. It is generally impossible for minors to open their own brokerage account, but custodial accounts and joint accounts allow young people to begin their investing journey with varying amounts of adult supervision.
The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.
How much should a 17 year old have saved up? ›
“A good rule to live by is to save 10 percent of what you earn, and have at least three months' worth of living expenses saved up in case of an emergency.” Once your teen has a steady job, help them set up a savings program so that at least 10 percent of earnings goes directly into their savings account.
How can I save 10000 in a year? ›
To reach $10,000 in one year, you'll need to save $833.33 each month. To break it down even further, you'll need to save $192.31 each week or $27.40 every day. These smaller chunks are much more realistic and simple to comprehend, making it easier to track your progress.
What age is too late to start investing? ›
(If you have additional questions about investing or retirement, this tool can help match you with potential advisors.) It's never too late to start investing, but starting in your late 60s will impact the options you have.
At what age should you stop investing? ›
As there's no magic age that dictates when it's time to switch from saver to spender (some people can retire at 40, while most have to wait until their 60s or even 70+), you have to consider your own financial situation and lifestyle.
How do I get started investing? ›
Here are 5 simple steps to get started:
- Identify your important goals and give them each a deadline. Be honest with yourself. ...
- Come up with some ballpark figures for how much money you'll need for each goal.
- Review your finances. ...
- Think carefully about the level of risk you can bear.
Key Takeaways. People who have not yet reached the age of legal adulthood have various options to begin investing in coordination with a parent or responsible adult. Beginning to invest at a young age provides significant advantages, as investments have a longer time to grow and benefit from the power of compounding.
Is it good to start investing at 16? ›
Teenagers who start early will understand investing, which will allow them to be comfortable with more complex investments as an adult. Investing in the market gives teens a head start in life and the opportunity to build real wealth. This can open opportunities and provide the freedom to reach their dreams and goals.
Should I invest in stocks at 16? ›
As a teen investor, you probably want to reduce the risk in your initial investments. Buying one share of stock, even if it is the stock of a big company, may still put your money at risk. However, Exchange Traded Funds (ETFs) are investments that represent a diversified group of companies that trade just like stocks.
Is it good to start investing at 15? ›
Getting started with investing as a teenager can yield substantial benefits in the long run, if you stick with it. Related: Sign up for stock news with our Invested newsletter. With time on their side, teens can leverage the power of compounding to grow their wealth significantly over the years.
