Getting a head start as a minor, especially in finances, is one of the best things that you can do
to ensure future stability and security.
It’s never too early to begin investing in your future. With a little bit of knowledge and a few
helpful resources, you can start investing as early as today.
Investing as a minor brings a few key benefits to the forefront of any young man or woman’s life.
Not only does it teach financial responsibility, but it encourages thoughtful pursuit and spawns
mental acuity from a young age.
With proper supervision, investing as a minor has never been easier
Table of Contents
Basic Saving Principles
Money-saving habits are some of the most important things that a parent can teach children.
Starting life with a proper balance of knowledge creates space for children to grow into
responsible adults while healthy habits.
When a child is introduced to the idea of saving money at a young age, they can quickly
develop habits that set them up for success. And there are simple ways to pursue these habits.
One great way to introduce these ideas to children is to talk about money. Be open and be
honest, encourage questions, and remember that you can start having these conversations at
any age.
Children are like sponges. They pick up the things around them and soak up the stuff they hear
repeatedly.
The more you talk about healthy money habits with them, the more inclined to pursue those
habits as adults. And the more you help them practice those habits, the better off they will be in
the long run.
Another way to instill these habits in your kids is to show them how you handle your
investments. Provide them with real-life opportunities to see your savings plan in action.
Above all, you should try to get them excited by the prospect of money management. Avoid
talking about it like it’s a chore or a pain. They will emulate the way they see you talking and
acting about money.
So make it fun.
Get Your Kid a Piggy Bank
If you have children in your life, the best way to start them off in investing is to get the piggy
bank.
Having something they can keep in their room and continually add change to will introduce them
to the idea of investing and saving in a fun, childish way. Encourage them to put their change in
until it’s full.
Filling a piggy bank can help your child understand the excitement that comes with reaching
saving goals. Once they grasp how gratifying it is to save hard-earned money, learning about
investing will become much easier.
Teach Them About Envelopes
If you don’t think a piggy bank is the right move, try showing your kids how to use envelopes to
divide their finances. Divide any chore or allowance money that they receive into different
envelopes—each one marked for specific things.
Make sure one is marked “savings.”
Creating this illustration paints a picture that will help them associate saving as an essential part
of their daily financial routines as they grow.
Open a Savings Account
One of the best things you can do for your child is open a savings account. If they’re a teenager,
walk them through the process.
A savings account is the most practical way to teach them smart money management. With a
savings account, you can teach them how to budget, how interest works, and how to take
charge of their finances.
Many banks provide plentiful options for minors interested in opening a savings account.
Opening an account has never been easier for a minor with special restrictions and parental
controls.
Opening a savings account will help your child take the first step toward healthy money
management habits. They can learn how to earn, how to save, and how to create goals for
themselves.
Establishing these routines at a young age will serve minors as they grow and mature. If they
have a healthy view of finances at 13, they are much more likely to have healthy money habits
at 23.
Stocks and Bonds
Stocks are the first thing that most people think of when investing. Bonds may not be as
common as they used to be, but they are still a viable option for saving and investing with kids
Stocks
When you purchase a stock, you purchase a share of ownership in a certain company. When
explaining it to a child, it’s important to stick to the basics. Try to use examples that they would
recognize, like their favorite toy manufacturer or a cereal brand they know.
Explaining stocks to a child could be as simple as explaining that when the company does well,
the stockholder does well. When the company does poorly, the stock loses value.
You can always go deeper as the kids get older, but a foundational understanding will help
introduce them to the concept.
While your child is a minor, you will have to be in charge of any stocks or trading they want to
participate in.
However, if they express interest in investing some of their hard-earned chore money in a stock,
encourage them in that. Show them how you set up an account, how you trade, and what
happens when you sell.
Giving your kids exposure at a young age to the stock market is a great way to make it less
scary as they enter adulthood.
Bonds
A bond is essentially an investment in a company instead of a bank loan. When a company
needs cash, it can go to an investor instead of a bank for a loan. The bond will be paid back in
full, plus interest.
Bonds might be a little trickier to explain to a minor, especially a young teenager. However,
breaking down the concept can give them a chance to walk through it and grapple with more
complicated terms.
Teaching your kids about “principal” and “interest” is an invaluable investment in their future.
Again, introducing them to these concepts at an early age creates an atmosphere of
appreciation.
Opening a savings bond works as a loan from you to the government. You loan them a small
amount of money, you hold onto that bond, and you cash it in 20 or so years later.
Since they accrue interest over time, it’s a low-risk investment that can produce three or four
times the profit.
Bonds used to be a reasonably popular gift for children. Grandparents liked to give bonds as
birthday or Christmas presents. A child may not understand that it is an investment on their
behalf, but they can come to see the truth in that with a bit of explaining.
Real Estate
Investing in real estate can be a tricky ordeal. It seems like someone is always talking about the
real estate market: is it good, bad, or stagnant. Real estate has a way of making into
conversations one way or another.
The truth is that real estate is one of the best investments for minors. While kids cannot invest in
real estate themselves, it’s simple for a parent to invest on a child’s behalf. Real estate
investments can help set them up for success later in life.
You can do more than just buy a house for your kids. While this sort of generosity can be highly
beneficial to a minor, you want to make sure they have a hand in the process.
Teach them how to use their savings for odd jobs around the property. Bring them along and let
them take ownership of chores. Make sure they understand that their role is as important as
yours in the process.
Education Savings Account
Minors interested in pursuing higher education can benefit greatly from an education savings
account.
Offered by most banks, an education savings account allows parents to help put money away
specifically for a child’s education. And these accounts can be used for expenses accrued from
kindergarten through college. When used for eligible expenses, withdrawals are free.
An education savings account is an excellent investment for minors and adults alike. It benefits
minors involved in private schools or are being tutored and helps parents save extra cash for
hefty education expenses.
Most banks provide specific guidelines for education savings accounts. Many suggest using
them as a valuable alternative to a 529 plan.
529 Plan
A 529 plan is a classic option for parents interested in helping a minor save for educational
purposes. A 529 plan can help pay for college tuition, apprenticeships, student loans, and tuition
at private schools.
You can also get your child involved. When you encourage them to put some of their
hard-earned money towards their education, you teach them the value of hard work and school.
When they can take ownership and feel as though they are a part of the process, kids quickly
realize the importance of the habits and values that parents share with them.
The best part of the 529 plan is the tax benefits that come with it. Not only that, but you can
transfer leftover funds to another beneficiary if needed. So nothing goes to waste in a 529 plan.
Custodial Accounts
A custodial account will hold stock shares in a minor’s name, with the parent or guardian of the
minor acting as the administrator. The minor can contribute money and make recommendations,
but the administrator must initiate all transactions.
With direction from parents, children can learn to study investment options and decide where
they want their money to go. A minor can seamlessly take control of the account with a custodial
account once they come of age.
Retirement Funds
It can be extremely daunting to tell a minor that it’s never too early to start a retirement fund. No
child wants to think about retirement before they’re even a part of the workforce. Frankly, most
adults don’t want to think about saving for retirement.
Introducing your kids to the concept of a retirement fund is an excellent way to introduce them to
the idea of long-term investing. You will do them no disservice offering plenty of options and
good resources for the kids to begin saving for their future.
There are a few viable retirement fund options for minors. A typical choice is the Roth IRA.
Roth IRA
One significant benefit of the Roth IRA is that contributions grow tax-free. Even if they only
invest chore money, those investments will pay off in the long run.
The plan works by taking after-tax money. That money compounds in the account and then can
be withdrawn tax-free in retirement.
Children may not think it necessary to consider retirement plans as minors. And that sentiment
is understandable. But it’s increasingly important to teach them the vitality of planning.
Setting up a Roth IRA with and for your child will allow them to save for the future. It will also
help them see the importance of sound money management skills. As they grow and begin
working, saving money for the future will already be established in their routine.
Exchange-Traded Fund (ETF)
An ETF is a security that tracks an index or a commodity, or some other type of asset. These
assets can be bought or sold on a stock market.
ETFs can contain various investments with low expense ratios compared to buying individual
stocks.
Setting up an ETF for a minor is as simple as starting one in their name. Depending on state
laws, this is usually at 18 or 21. Using a mutual fund company or brokerage firm, the minor can
take control of the fund when they come of age.
There is a gift tax on the money in the fund, but it can help them understand investing and the
technicalities associated with the process. Giving your child such exposure is invaluable.
How Early Is Too Early?
The truth is simple: it’s never too early to begin investing.
Children should be encouraged to learn about things like mutual funds, Roth IRAs, and real
estate investing. The more active a parent is in walking through the process, the better off the
child will be.
Learning money management skills through investing is a great way for minors to mature their
money-handling skills. Setting a savings goal at a young age will put them on the right track to
think wisely about money.
Don’t wait until your child is a teenager to talk about smart money management. Share your
insight with them when they are young. Give them a chance to ask questions. Some things will
naturally confuse them, but that’s alright.
You should encourage a smart, healthy view of money in your children. This can begin at any
age. The younger they are, the better off they will be in the long run.
Age Restrictions
Most states have strict age restrictions for investment in things like stocks. Some states, such as
New Jersey, Maine, Kentucky, and South Dakota, restrict trading securities to those 18 and
older through a brokerage account.
Like North Dakota, Iowa, Ohio, and Pennsylvania, other states restrict trading to those 21 and
older. However, investing in stocks independently is permitted for anyone.
With options like custodial accounts, parents or legal guardians can open investment accounts
for their children and easily transfer ownership when the minors come of age.
Using Roth IRAs or ETFs, parents can invest in their child’s name. Children can contribute to
these investments with their own money, starting them down the road of making smart money
decisions.
Even brokers utilize age restrictions, usually requiring a minimum age of 18 to open an account.
Financial literacy, however, comes with no age restrictions.
Although minors cannot generally invest independently, there are plenty of ways to get them
started. Setting up accounts for them and allowing them to contribute their own money is the
simplest way to get your child thinking about investing.
Frequently Asked Questions
Modern resources make investing for minors incredibly simple
Between Roth IRAs, ETFs, custodial accounts, or simple stock investing, it has never been
easier to ensure minors are well equipped for future financial stability.
However, there are still a few key details that you might want to consider before helping your
child, grandchild, niece, or nephew begin investing.
How do I set up an investment fund for my child?
There are many different ways to set up an investment fund for your child. You can simply start
one in their name for something like an ETF. For investments like stocks, you will need a
brokerage account.
Once your child comes of age, you can transfer fund ownership to them. Or, you can continue to
help them manage it if they ask.
Can I set up a Roth IRA for my child?
Yes, you can set up a Roth IRA for your child. It’s pretty easy, and a recommended means of
preparing some kind of retirement fund for your child.
Can I open a CD for my child?
Most banks allow CDs to be opened on a child’s behalf. While CDs accrue more interest than
regular savings accounts, it is low compared to other investment options.
A CD is a safe investment and could be an excellent way to introduce your child to the idea of
investing. But it is typically considered more of a financial gift than a valid investment option for
minors looking to prepare for their future.
Can I open a money market account for my child?
Like a custodial account, you can open a money market account in your child’s name. You will
act as the custodian of the account until your child comes of age, at which time they can take
control of the account.
What kind of savings account should I open for my child?
A custodial account is the best option for anyone who wants to save money for their child
without giving them immediate access to those funds.
Most banks have special restrictions they can put in place before your child turns 18. You can
also open a regular saving account for a minor. This includes allowing you, the parent, to see
and have access to the account.
Whatever account you decide to open, you want to make sure that you include your child in the
conversation so they can learn and grow in their money management skills.
Are custodial accounts a good idea?
Yes. Custodial accounts are a great way to introduce your child to investing and saving without
immediately giving them complete access to those funds.
Can you buy/sell stocks in a custodial account?
Depending on the type of custodial account, you can sometimes buy and sell stocks. For
instance, you can trade stocks and many other investment options with a brokerage account.
Are custodial accounts taxed?
Yes. Like most things in life, custodial accounts are subject to taxes. For example, the capital
gains tax is applied to account holdings when investments have been kept for at least one year.
While some special tax rates may apply, the percentage can vary based on your income.
Can a parent withdraw money from a custodial account?
If the purpose of the withdrawal is to benefit the child for whom the custodial account was
opened, then parents may do so. However, to make withdrawals for their benefit is strictly
prohibited.
It is also illegal to withdraw funds for a child who is not the account’s beneficiary.
Who is responsible for taxes on a custodial account?
The child is responsible for taxes on the custodial account. Since the income in the account
belongs to the child, it is the child’s responsibility. If the income exceeds a certain number
(which varies each tax season), they may file taxes separately.
Having an accountant or a financial advisor can help ease the burden of navigating these
complex issues.
At what age can you day trade?
There is no age limit on buying, selling, or trading stocks. Independent of a brokerage firm, any
minor can begin investing in stocks.
However, to utilize the help and wisdom of a brokerage firm, an individual must be at least 18
years old. The age varies depending on state laws.
How do you create wealth for kids?
Creating wealth for kids seems like it should be a complex process. There are laws and
regulations, taxes, custodial contracts, and so many other guidelines that you must follow to
begin investing and saving for your child.
However, there are incredibly simple ways to instigate wealth creation as well. As we’ve
discussed, the first step is having open and honest conversations about wealth creation and
management with your child.
The best thing you can do for your child is get them interested and excited about investing.
Then you can open accounts for them, teach them about stocks, start IRAs and EFTs.
But it is crucial to begin talking to your child about the importance of healthy money
management skills.
How much money should a 12-year-old have in the bank?
There is no magic number for 12-year-olds who are trying to save money. Any amount they can
put away will set them on the right track.
Try to encourage your young children to simply focus on putting something in the bank. If they
have an allowance or chore money, explain how to set some aside for spending and some for
saving.
As your child gets older—closer to 15 and 16—you can begin broaching the topic of setting
savings goals. Show them how setting monthly and yearly goals will benefit them in the future.
Especially as your child grows and begins working in some capacity, it will be highly beneficial to
have a saving and investing mindset.
They won’t feel compelled to spend all their earnings on toys and games. They’ll enjoy saving,
and they will enjoy seeing their hard work pay off.
Can I get my child excited about saving money?
Absolutely. Getting your child excited about money management is an attainable goal. Not only
that, but it should be an exciting job for a parent.
Making chore lists, offering allowance, and creating fun games can get your child excited about
saving money. Do things with your children to help them understand the basic principles of
saving money, doing it effectively, and building a healthy routine.
Investing Becomes Habit
When you work with your kids to help them understand investing, you give them a valuable gift.
You are preparing them for a lifetime of discipline and financial stability.
Making your kids excited about investing can seem tedious. It may seem challenging to instill all
the necessary information when young. But as they grow and mature, you will see your hard
work pay off.
As we have discussed, children are like sponges. They soak up all the information around them.
They especially soak up the habits and routines of their parents.
Setting a good example for your kids will not just benefit them. You will find that teaching them
about investing will help you learn more.
Helping minors invest and teaching them about money management will help them create
stability for their future. And as you teach, the more you learn. The more you learn, the more
excited you could get about creating financial stability in your own life.