20 May 2021 Should Your Teenager Trade Stocks?

Earlier this week Fidelity made some waves for an announcement that “it will issue debit cards and offer investing and savings accounts to 13- to 17-year-olds whose parents or guardians also invest with the firm. The accounts will let teens buy and sell U.S. stocks, Fidelity mutual funds and many exchange-traded funds.” Fidelity will not charge commissions on trades made in these accounts.

What’s new and different with this is not that minors can have accounts that their parents or guardians have custody over (these types of custodial accounts have been around for a long time). What’s new is that this is not technically a custodial account but is an account opened in the teenagers name and SSN, meaning that while parents still have significant authorizations and oversight (and can close the account at any time), the teenager can make trades, spend money using a provided debit card, and serve as the sole-decision maker on the account. 

So, teens now can trade stocks, on the bus, while making a TikTok video, but of course the question I’m asking is: “Should they?“

Before I answer that question, though, I need to answer a bigger question: What is parenting for? 

Just kidding, I’m not going to do that. Look. All kidding aside, when we start talking about money, and when we start talking about children, and especially when we start talking about money and children at the same time, there are no short, easy answers. 

So instead of trying to give a long, nuanced answer that would probably be unsatisfying anyway, this post is simply going to be a list of things to consider and priorities to nail down if you have a teenager who’s interested in trading stocks. Because in the end, the answer to the question “Should Your Teenage Kids Trade Stocks” is: Yes and no, it’s fine; I am not for it or against it; it depends.

Before you consider handing the proverbial stock-trading keys to any 13 – 17-year-old, I think it’s important to have made progress on three things: values, attitude, and work ethic. Stock trading is very risky and potentially addictive, and it’s important that teenagers (and adults!) have a foundation of situating money within a particular faith or value system or worldview, an attitude of gratitude and humility, and a work ethic that is teaching them the value of a dollar earned (I.e., if they want to trade stocks, make them get a job first).

Those three heavy things aside, here’s how I’d dip my toe in these waters:

• Start with the basics. If your teenager hasn’t learned the basic skill of allocating money between “Give/Save/Spend,” then getting them into trading stocks is more likely to be damaging rather than productive. A link needs to be established first between earning money, saving some portion of it, and investing a portion of the savings. 
• Make them use their own money. I’m not going to say don’t give your kids money to invest, but I am going to say, keep it to less than half the contributed amount. Investing someone else’s money is not conducive to learning the right lessons.
• Include a benchmark. Consider purchasing some nominal amount of an ETF that tracks a broad index of stocks (like VTI or VOO) and requiring your teenager to keep it there as something with which to benchmark the performance of the rest of their stocks.
• Do it with them. I think one of the biggest upsides to this would be the conversations you have and the opportunities to build shared experiences with your teenager. Have a weekly check-in to see where you stand, chat about market-related articles (maybe even sign them up for the Friday Brief!), and share wins, losses and bone-headed maneuvers. Consider calling this check-in “The Good, The Bad, and The Ugly” and approach it with brutal honesty. Which leads me to my next suggestion…
• Make it fun. I hope it goes without saying, but the idea here is not to scar your teenage child and leave them with a trauma that keeps them from ever investing again. Instead, you simply want to teach them a healthy respect for the whims of individual stock trading while also seeing that investing is really important and something they want to do for the rest of their lives.
• Teach the right lessons. This is where it gets hard, because investing by its very nature is meant to be a long-term endeavor and, not to make you too sad, but your kids won’t be teenagers forever. That being said, here are some lessons I’d try to instill:
  • Investing is for the long haul.
  • Investing in individual stocks is fun, but it’s difficult to do well over that long haul.
  • Expenses and taxes are really important, so the gambling-adjacent day-trading they may want to do is not a sustainable investment strategy.
  • TikTok is not the place to get investment advice.
  • Most importantly, keep reminding them that ultimately investing is not a game, but something we do in order to accomplish really important goals in our future.

I will say one more thing about this Fidelity program in particular (which they call “Fidelity Youth Accounts”). Maybe you get to a point where you decide you want your teenager to be exposed to the stock market and take some agency over things, well, I still wouldn’t recommend this program. I’d just use a regular old custodial account. There are several reasons for this, but I’ll mention two here: First, if your teenager is working (which I strongly recommended prior to them investing), then they have earned income and I think they’d be better off investing with a custodial Roth IRA. Second, the liquidity of this particular brokerage account (i.e., they have a debit card, there are no rules around distributions out of the account, etc.), will make it harder for you as a parent to instill what I think is the most important lesson, which is that investing is inherently a long-term endeavor. Certainly brokerage accounts can and sometimes should be used for long-term investing, but when you give a 15-year-old a debit card and no restrictions, it’s not extremely likely that they’ll learn that lesson…

Successful investing, for most people, is more behavioral maturity than learned technical skill, and “maturity” and “teenager” are not commonly associated with each other. But assuming your teenager has a real interest in getting into investing, and assuming they have at least begun learning some of the more important skills required in personal finance (like earning money and not spending it all), then I think this could be a fun family activity that teaches important, lifelong lessons to everyone involved.

Let us know if you and your teenager end up doing this! We’d love to hear your stories.