Should Kids Invest in the Stock Market?

Baby Piano

by Ryan

During one of my math classes in middle school the teacher talked about the power of compound interest and asked if any of the students had stocks. Some raised their hands and said they had stock in things like Disney or Coca Cola, nothing fancy, mostly big name companies. However, I was pretty darn jealous. I wanted some compound interest and to say that I owned Disney and Coca Cola shares! Flash forward nearly a decade to yesterday when I was reminded of this experience by an email I received.

A 15 year old reader emailed me and asked “what do you think I should invest in?” Although I said I couldn’t offer advice, I wasn’t even sure if a 15 year old could invest. After quickly checking my best pal Google, I learned that minors aren’t even able to legally invest in stocks and have to do it through a custodial account through their parents. I’m not sure of all the technicalities, but it does seem fairly easy to set up. I was impressed by the question and wondered how early should kids start investing in the stock market?

Why Kids Should Invest

I’m a firm believer in learning through doing. Talk to a kid about the stock market day in and day out and they might pick up a little, but if you give the kid $100 in real money to invest in the market they’re much more likely to remember the lessons taught by Wall Street. They might speculate (more than likely), but at least they’ll begin to realize that there’s more involved which will begin to get them to start asking questions. Questions lead to research, books, and finding others who know the answers, which is a great way to learn. But without the involvement of real money, the kid probably won’t care nearly as much.

Parents start their kids off young in a lot of things such as playing piano, sports, or joining boy scouts. Why not let them dabble a bit in the market which will probably last with them much longer than their sports career?

A Fairly Successful Young Investor

At eleven years old, Warren Buffett bought his first stock… enough said 😉 .

What Should Kids be Focusing on?

I’m not so sure it’s the amount that matters (probably because a lot of kids won’t have much or will be saving for college), but I think just being active in the market will teach them the basics such as P/E ratios and margins. If they’re actively interested in their real money, they’ll learn more about the market just by being around it. Depending on who’s teaching them along the way they’ll most likely overcome speculative behavior and maybe even develop a little bit of investing patience!

How to Let Your Kid Invest in the Stock Market

If you’re a parent who’d be interested in letting your kid purchase some stock you’ll need to open a custodial account. Several brokers such as Tradeking.com, Zecco.com, and Scottrade.com offer such accounts, some without a minimum account balance.

If you have kids or are planning on having them in the future, why not let them get some hands on experience with investing and get them excited about it? Worse case scenario they lose a few hundred bucks and become more familiar with the market along the way. Who knows, if you start them at age 11 maybe they’ll beat the oracle of Omaha!

If you have kids, or are planning on having kids, are you going to get them involved in the market before they turn 18?

How old were you when you bought your first stock?

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{ 28 comments… read them below or add one }

MFO March 29, 2010 at 3:47 am

Great read with a topic I never really thought about! Now that you mention it, I will teach/encourage my children to invest in the stock market before they turn 18. I will start them with a practice account first. Benefits include fostering an interest in not only an important part of our economy, but a possible career path later on. If Warren Buffett started at 9, my kids are starting at 8:)

Simple in France March 29, 2010 at 9:04 am

I kind of like this idea. We had the whole middle school activity as well (when studying % change, I believe).

I think just allowing kids to have a few, small and basic investments could be a great way to allow them to learn more about the stock market. But the same should happen with savings accounts for sure!

And someone needs to give these kids a good schooling about credit cards too! That would be a good thing to ‘simulate’ though. No credit cards for kiddies!

Pinyo March 29, 2010 at 5:10 am

Really excellent article. Personally, I wish I had started sooner. I wasn’t introduced to the concept of investing until after college. :-(
.-= Pinyo´s last blog ..How to Choose High Yield Savings Accounts =-.

Money Funk March 29, 2010 at 5:28 am

I would love to get my kids to invest in the stock market!
Just like when my kids say, “I want to work at Taco Bell”. I say, “why work there? Own one!”.

But, I have not gotten my kids into investing into the stock market because of my own lack of investing knowledge.
.-= Money Funk´s last blog ..Great Giveaways by PF bloggers =-.

LenciB: Falling Into favor March 29, 2010 at 5:28 am

My parents let me invest in the stock market…mainly because we did some little fake investor deal at school….and I did well in it and my stock did well too! It wasn’t major money involved though.
.-= LenciB: Falling Into favor´s last blog ..Confessions of a New Wife =-.

Money Reasons March 29, 2010 at 6:50 am

I had an uncle that would buy me shares of stock every year since I was 5. I didn’t do anything with it growing up (my uncle lived in a different state, so he couldn’t train me).

I’m going the same with my kids, I have a Schwab custodial account setup for them. They know they have money invested, but they don’t participate in the process yet. It’s good to at least have a basic understanding of the math involved (this is on of the few areas where basic math comes into play for the average american). I explain how to setup a Schwab UTMA account here.

I’ll probably involve my kids in the process when they are 11, 12 or maybe 13… I think I’ll start with dividend stocks first so they will reap the rewards quickly… Perhaps it will create a sort of postive re-inforcement…

RJ Weiss March 29, 2010 at 7:40 am

I was one of those kids whose grandparents bought them Disney stock. As a matter of fact, I just got my dividend check in the mail the other day and it was $1.25. (:

I started investing on my own when I was 18 and of course didn’t know what I was doing.
.-= RJ Weiss´s last blog ..All About Asset Allocation Strategy =-.

Lakita (PFJourney) March 29, 2010 at 7:44 am

I never invested in the stock market as a kid. The closest I came was a “stock market” game we did in high school economics class. But it wasn’t real money. There really wasn’t any teaching on what to look for, so basically we just picked our favorite companies and went for it. I wish there was more teaching on strategy…it felt more like a random lottery.
.-= Lakita (PFJourney)´s last blog ..Will You Take Advantage of the Homebuyer’s Tax Credit? =-.

Search Engine Viking March 29, 2010 at 8:49 am

You bring up an interesting point (again!), Ryan. I’ve never been a stock investor – or an investor at all – so I’m a little lost myself, and wonder if I had been given a lesson or two as a youngster, even if it were by trial and error, I might be a little more willing to invest money as an adult.

Here’s something to think about though. I’ll break it up into two point-counterpoint style bullets:

Should children investors receive instruction?

There’s an awful lot to learn when it comes to the stock market, and throwing a kid into the pool without a swim lesson might be a good way to get them frustrated and lose their money. They might even vow never to return again.

Should children NOT receive instruction?

Life has a funny way of producing “the way things are always done EXPERTS” who merely do the same thing day after day. These folks aren’t visionaries, they are cookie cutters who know a formula. Because kids are more likely to ask “why” and look at the world differently, they may develop their own successful strategy – one that they never would have done if they received instructions.

… Sorry for the long comment 😛
.-= Search Engine Viking´s last blog ..Writing For Other People’s Blogs: My First Guest Post =-.

Kristine March 29, 2010 at 9:53 am

I love the idea of getting kids involved with investing before 18. Surely, the school system does nothing to teach kids about personal finance, so parents have a great responsibility.

I think the main focus of teaching investing to my kids would be to first invest in themselves. Focus on what they are great at, what they love…build up their talents. Then, I would encourage them to do their own research as to how to invest their own money. It could be the stock market, real estate, or building your own business. It’s important for them to build up their own financial intelligence.
.-= Kristine´s last blog ..Lost Opportunity Cost – The Wealth Killer =-.

Tom @ Canadian Finance Blog March 29, 2010 at 1:30 pm

I definitely like the idea of teaching kids about personal finance in general, never thought about stocks though. With my son only being 6 months old, maybe I just haven’t thought that far ahead? I only got as far of the ides or how his allowance will be all he gets and I’ll help him learn how to budget and save to get the things he wants. Could definitely see the fun for a teenager investing in a brand for no other reason that because you know it and like it… like a Coca Cola, very Buffett-like!
.-= Tom @ Canadian Finance Blog´s last blog ..What is Financial Literacy? Part 2 =-.

Matt @ Dividend Monk March 29, 2010 at 4:40 pm

I definitely think kids should learn to invest. I started investing in high school and wish I had started earlier.

There’s no teaching method that can prepare someone better than to actually give it a try. Once kids grasp basic valuation concepts, I think it would be a good idea to let them invest some of their own money. If they can see the power of compounding with their own money long before they get a credit card and mortgage payments, I think they’ll have much more financial success in life. I think dividend stocks would make the best bet, because even if the stock price stays flat or goes down for a while, they’ll still get the dividend payments and are more likely to feel empowered by it. It’s important that the early lessons to be good ones that leave positive long-term impressions.
.-= Matt @ Dividend Monk´s last blog ..How to Read My Stock Analysis Reports =-.

Shaun McGowan March 29, 2010 at 5:20 pm

I would also love to get my kids to invest in the stock market! The stock market is dynamic and always changing – so it shouldn’t be boring once their interest is piqued.

Derek Clark March 29, 2010 at 6:09 pm

I bought my first stock at 22. I plan on having my kids investing at a very young age. I’ll give them some small amount of money to play with, then when they start to earn some themselves a portion of that will probably go to it as well. A kid doesn’t need to learn p/e ratios and chart reading when they are 10 to learn about the market. Teach them to invest the way Lynch or Buffet would. Find great companies that they interact with already. Your kid isn’t going to find a great Chinese small cap, but they can find Disney, Coke, Apple, and McDonalds. All of which are great companies that they won’t likely lose all their money investing in.
.-= Derek Clark´s last blog ..Never Loan Money To Friends and Family =-.

Walter March 30, 2010 at 3:03 am

Well, there’s no harm in trying. We will never know unless we put it to the test. :-)

Jeremy Johnson March 30, 2010 at 4:39 am

32 when I first invested in stocks (about 4 months ago). Definitely want my kids to invest. Would like them to learn through a game or some interactive learning scenario while I create their account. Then when they get old enough (not sure what that age is, 11 maybe? :)) they can make some decisions on their own.
.-= Jeremy Johnson´s last blog ..Video – Garden Of Life Series Part 1 =-.

Kate March 30, 2010 at 7:12 am

It is a great idea to get a younger child into the stock market. My grandfather set up an account for me when I was younger to pay for college. While I didn’t actively trade stocks, I did get to see what happened with splits, etc.

Also, if your child is very interested, a great thing to ask for gifts – donations to their account.

kt March 30, 2010 at 8:17 am

the earlier the better. how knows, your kid may be the next oracle of wherever :) naf said

Investing Newbie March 30, 2010 at 12:32 pm

I am planning on getting my kids into investing. And if BF and I get married, then there’s no way they are going to NOT hear about the market day in and day out.

I was the ripe age of 22 when I invested in my first stock. Yahoo at $13.97. It was a rush!

harvestwages March 30, 2010 at 4:03 pm

hey Ryan,
This is a challenging question. I never had the luxury of investing young, but i believe children should be given that opportunity. It will do them no harm.
.-= harvestwages´s last blog ..Alexa Yakezie Challenge – Here comes a new challenger =-.

Bradley Gauthier April 1, 2010 at 8:06 am

My dad let me open a custodial account at Ameritrade in 6th grade. I had $1500 saved up and saw on TV that I could make more money by investing it in stocks (this was right around the start of the dotcom bubble).

After sending Ameritrade my long saved money, I read about upcoming trends. I bought Registry Magic, who created Bluetooth a year after I purchased them, tripling their price but ultimately selling their technology to IBM (losing their bread and butter, eventually leading to bankruptcy). I also bought eMusic (one of the first legal online music websites) but they didn’t monetize correctly losing everything. And my third buy was Hanson Naturals (before they created that little known drink called Monster), their price skyrocketed.

Needless to say, watching these stocks made for an interesting middle school financial experience.

The reason I am mentioning my first investments, is to illustrate the fact that early on in life I witnessed the rise and falls of businesses. That money was out there to be made but there will always be risk involved… it’s a part of life, might as well find a way to calculate and mitigate risk. Without this early experience, I feel I wouldn’t be as far into financial intelligence as I am. And I plan on repeating this process with my children as well.

Great post Ryan!
.-= Bradley Gauthier´s last blog ..Questioning Everything: The Missing Art of Critical Thinking =-.

Me April 20, 2010 at 11:55 am

I started a custodial account at seven after learning from my dad since second grade and reading books like growing money. I also started by managing my collage money moving it into mutual funds and cds only then was I aloud to start an account. When ever I found a stock my parents would approve before it was bought

Leo @ Asset Based Loans May 8, 2010 at 8:05 am

I think one thing that should always be taken in consideration is “Diversification”. By following this gold rule of “Don’t put all your eggs in one basket”, your portfolio will remain solid.

Dylan December 6, 2010 at 3:02 pm

I have been allowed to invest in the market and its a lot of fun. I do research about stocks learn about companies and the different types of stocks. I can invest my own money and have been doing that for three years. My parents have helped me learn but most of the research I do on my own. For any kid new to investing I would recommend starting out with low cap stocks and try to pick the low carefully. I am thirteen and I arleady love trading!

Creative Financing Guru February 1, 2011 at 12:44 pm

Now this is quality work. You touched on a subject that is so important for parents. True, your kids may not understand the stock market, but they will definitely appreciate the results produced when they are teenagers or looking to go to college. If nothing else, what a bragging right! “I have had stock in Disney since I was 6 years old.”…

I am building a portfolio for my 2 year old now.
Creative Financing Guru´s last blog post ..How An Asset Based Loan Can Help Your Business

Frank P February 8, 2011 at 7:09 am

Go along the lines of imagining you will lose your investment and you cannot go wrong. I find stocks and shares strangely addictive!

Jakob February 21, 2011 at 11:44 am

I what to invest in the stock market because I can make money, and with that money i what to buy a house in New-Brunswick there cheap i could rent them out and whit that money more stocks.

Charles February 26, 2011 at 1:57 pm

I would prefer that my kid invest in a passive instrument such as mutual funds and not actively invest in the market. For instance, imagine your kid putting aside 50% of her allowance into a mutual fund every week, that’ll be a great little nest egg for her first car, her first trip w/o the family, etc.
Charles´s last blog post ..5 Ideas to Stretch the Dollar with Kids

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