Should Kids Invest in the Stock Market?

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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?

Image from S-t-r-a-n-g-e

MFO
Guest

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:)

RJ Weiss
Guest

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 =-.

Simple in France
Guest

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
Guest

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
Guest

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
Guest

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
Guest
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… Read more »
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Lakita (PFJourney)
Guest

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
Guest
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… Read more »
Kristine
Guest
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… Read more »
Tom @ Canadian Finance Blog
Guest
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 @… Read more »
Matt @ Dividend Monk
Guest
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,… Read more »
Shaun McGowan
Guest

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
Guest
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… Read more »
Kate
Guest

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.

Walter
Guest

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

Jeremy Johnson
Guest

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 =-.

kt
Guest

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

Search Engine Viking
Guest

That’s a great point, kt!

When (I should say “if”) I have kids, I’m going to start them young, on the off chance that they are stock market prodigies. And then I’ll get my grubby hands on their profits the way Macully Culkin’s dad did to his Hollywood nestegg.

That’s MY retirement strategy 🙂
.-= Search Engine Viking´s last blog ..Boise Website Series Part 2: Setting Money Goals =-.

harvestwages
Guest

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 =-.

Investing Newbie
Guest

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!

Bradley Gauthier
Guest
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… Read more »
Me
Guest

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
Guest
Leo @ Asset Based Loans

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
Guest

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!

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[…] If you have a personal finance nerd in your family who asks for stocks for Christmas, just give the kid some stocks. It’ll be a gift that keeps giving over time, will interest the kid in the stock market, and […]

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