It’s never too early to teach kids about investing. If you want your child to be financially responsible, then talking to them about investments is an important step. It can seem intimidating at first, but learning how to explain investing to a child doesn’t have to be complicated or difficult.
In this article, we will talk in depth about how talking with children about stocks might go and the best way for adults to approach these conversations with their children.
Talking to Kids About Investing
Are you teaching your child about investing? As they become aware of money and other financial concepts, you’ll want to start familiarizing them with investing knowledge.
With enough exposure and explanation, you can equip them with the financial literacy they need for adult life. This means understanding things like:
- the stock market
- how to think about companies as investments
- what risk you take on by investing
- where to get the funds to start investing
Children mature at different rates, so you might not start off with complicated financial planning topics like asset allocation, risk mitigation or portfolio management.
Instead, explain investing basics to develop your child’s financial education and begin early.
Long before they search for the best stock trading platform, tear through stock research tools, or do deep dives on a company of interest, they can understand the relationship between risk and reward.
One easy way to start is by including kids in financial conversations and exposing them to the most common investments in markets today: stocks and bonds.
Tips to Teach Investing to a Child
1. Include Kids in Financial Conversations
If you want to make your child comfortable with investing money, you’ll first need to instill comfort with the concept of money in general.
That means broaching money subjects with your child, even when they’re young. This doesn’t mean a formal discussion or a college lecturer’s prepared remarks.
In fact, casual dinner table conversations, observations at the grocery store or even discussion while waiting in line for ice cream all play important parts in teaching kids about money.
You can cover personal finance basics like what it takes to earn money, create a budget, pay bills and prioritize the choices you make for purchase, or even talk about things to save up for.
Once you’ve covered these fundamental topics, you can move on to how a company works. Discuss revenues, expenses, profits and cash flows.
Because cash is king, you can think through how cash at a company comes through the door and pays for everything the company needs to operate and grow.
Likening revenue earned by a company to a paycheck can illustrate the point easily enough. First, you pay taxes on these earnings and you reinvest a bit (akin to saving and investing for future needs).
Then, you need to pay your bills like workers’ salaries, utilities and insurance as well as pay for the goods you need in daily life like groceries.
The remaining part is profit and can either go toward something fun or reinvest it back in the business to improve your finances.
Kids learn best with examples. When sharing information about your personal finances, you don’t necessarily need to share actual numbers, though your illustrations should entail sharing financial concepts with your values around money.
Take this as an opportunity for yourself as well. By revealing your financial situation and thoughts, showing negative money patterns might prove difficult.
Take the opportunity to right this poor behavior and develop good money habits for not your child, but yourself. Win-win.
From here, you can begin broaching the subject of investing. One of the best ways to teach your kids about investing is through the most common types of assets: stocks and bonds.
2. Talk About Stocks and Bonds
Investing involves many components, but chief among them is the concept of risk.
By introducing the idea that—in stark contrast to a bank account or banking app your child may already have—stocks act fundamentally different and involve variable levels of risk and return, your kid, they can begin to understand their benefits and drawbacks.
In short, stocks can classify as high risk assets, but they can also serve as potential for high-yield investments which provide appreciation potential.
Start first by explaining the value of a stock can go up and down, and this depends on a number of factors. Most importantly, a stock’s performance depends on its growth prospects and its profitability.
But just having good marks in these areas doesn’t guarantee high returns because you can’t always predict risk in stocks.
For instance, many investors may find a company’s financial profile attractive enough to buy into the stock. This results in an overpriced stock and makes it difficult to justify future high returns.
As famous investor Howard Marks succinctly concludes, “It’s not what you buy. It’s what you pay.”
Though, what you buy does matter if you want to hold the stock for a long time, the surest path to growing long-term wealth.
As a lower risk, lower return investment, bonds don’t represent ownership in a company, but rather a type of debt security.
This means you have lent money to a company in exchange for a future stream of interest payments and the return of your original money, called the principal.
When companies, governments or agencies issue bonds, they pay some amount greater than the prime interest rate.
How much depends on the institutions, but investment grade bonds come from stable institutions highly likely to repay their debt as promised.
For higher risk and greater return potential, you can find lower-rated bonds but know these carry a higher likelihood of defaulting and stiffing you out of your money.
In truth, the complexities of bonds make them difficult to explain to a child. Thankfully, because your kid’s greatest asset is youth, stocks are more suitable to their situation.
They provide higher returns on average and offer long-term wealth potential while bonds look to provide income. That’ll become more important later in life.
3. Start with a Savings Account Before an Investment Account
A child’s financial journey begins with saving money, but investment is the next step. You should tell your children the difference between saving and investing, and what risks and rewards to expect from each.
Diversification is key for investing. Unlike a bank account, which holds all your savings in one place, sustainable investing requires buying a number of assets or one asset which holds several like an index fund.
When talking about investing, you should always talk about the importance of keeping your eggs in separate baskets.
This minimizes risk of loss but still provides return potential above and beyond what you would earn in a high-yield savings account.
Kids also learn well about important money concepts through stories and relatable events.
4. Teaching Your Kids Money Management with Stories
How many lessons in your life came from stories you read as a kid? Any number of fables or stories teach morals and how to navigate important topics as we get older.
While some instill lessons like being kind to others, some can also speak to the importance of money management and financial planning.
But stories don’t stop teaching us when we’re adults. When we get together with friends and family, we still tell stories. It’s how we relate with each other and keep each other engaged. Kids and adults alike come hard-wired for stories.
Therefore, it only makes sense to narrate your ideas of investing through stories. This will involve them in your investing activities and keep them engaged wanting to learn more.
You can describe your own savings and investment ideas to children and explain why you’re saving, whether for short- or long-term wants and needs.
Further, by involving children in stories, they’ll be more likely to follow your advice. That’s especially true if they understand the reasons behind it as told by characters in a story.
Once you’ve imparted your knowledge about how to think about investing topics, it’ll be time to move on to making decisions with how to invest.
If you make them a part of the decision making process and allow for questions before deciding on your child’s investment plan that’s best suited for their age level, they’ll be more inclined to participate.
This way you’re not talking at kids but talking with them about investing.
5. Teach Kids the Stock Market Isn’t a Casino
Children also need to understand the purpose of investing—and it’s not to gamble money at a casino.
When it comes to money, setting a good example is the best way for kids to learn. Minimize how often you trade and treat it like a disciplined decision you’ve made for at least the next five to 10 years.
Further, bonus points if you can commit the money to quality companies through index funds that provide instant diversification to a portfolio.
Or, if you’d rather more engagement, you can also augment this core portfolio of index fund holdings with individual stocks you think will outperform the market over years to come.
What’s important here, however, is not to trade just on this market news like a casino where you make bets. Gambling is a game of chance with a zero-sum ending (if you lose, the casino wins).
Investing wisely generates wealth for the economy and relies on understanding markets and how companies perform.
The GameStop market mania from early 2021 taught us all that what goes up (inexplicably, at times) comes down just as fast.
Many apps like Robinhood offered access to these types of stocks until they couldn’t keep up, leaving retail swing traders in the lurch.
Avoid anything like this when teaching your child about investing, because this creates a false narrative about sound investing practices. Stick to a strategy, diversify and add money steadily to your portfolio.
And what if you’ve never invested before yourself? The same strategy as above works: start with a small investment, show your child how it grows and continue adding bit by bit to your position.
In addition to talking about investing for the long-term, speak to them about putting money into short-term savings as well.
This’ll help their financial literacy grow and make sure they’re prepared in case anything comes up unexpectedly in life that requires an emergency fund.
By teaching kids about investing, you also should point on the importance of saving steadily over time.
This will ensure you have money available when you need it and you don’t need to pull money out of your stock investments.
To the point, talk about investing as a long-term commitment rather than a way to trade and make quick cash in the market.
In the end, investing is about planning for your money needs down the road and allowing your investments to empower you to do what you want in life.
It should connect you with the life you want and not just serve as a way to live an opulent lifestyle as you see in the movies.
6. Help Kids Start with Developing a Financial Goal
Parents can help kids understand the importance of financial planning by having them set goals for their investments.
In the same way that a certified financial planner or financial advisor can help clients define and establish quantifiable goals for themselves, parents can guide children through establishing their own goals.
To keep kids involved in the process of saving for their goals, encourage them to save for activities that interest them, whether that involves a new video game or a trip to Disneyland.
You should let them choose something that excites them and brings them lasting joy as this will instill in them a drive to work toward a goal they wish to accomplish.
Further, this teaches your child about delay gratification, perhaps the most important lesson for any investor to understand: sacrifice today for greater gain tomorrow.
Parents can shape their children’s financial future by teaching them about saving, budgeting and giving. This doesn’t require a complex system but can be as simple as three envelopes with the category written on each envelope.
When children receive money, you should help them decide how much should go into each envelope. You can use money apps for kids to automate this system.
Some apps like Greenlight, allow you to establish Savings Goals with dedicated purposes so you know how you progress toward the stated goal.
With Greenlight’s Savings Goals, the investing app, bank account and debit card for kids and teens makes it easier for you to empower your children to establish healthy, lifelong financial habits.
You can set new savings goals to motivate their focus on money management by creating Savings Goals to save for specific purposes – like a new bike, phone, game, or trip!
What’s better, you can also establish Spend Controls into their General Savings or Savings Goals, requiring your kids to request to move money through the app.
This way, you can have those difficult and enlightening conversations about the trade-offs between continuing to save or spending their hard-earned money.
7. Explain the Power of Compounding
Compounding returns make an investor’s heart sing. Compounding provides investors a return on their returns, adding lagniappe, or a New Orleanian (French) way of saying something extra, to your investment portfolio.
Despite an investor’s love affair with compounding returns, it might not always be the easiest concept to explain to small children.
Like stories discussed above, kids do well with examples to illustrate how a concept works. One great exercise to consider is the doubling penny exercise to demonstrate how compounding works.
Start first by asking if your child thinks a penny represents a lot of money. Almost inevitably, they’ll say it doesn’t. Then, ask if a penny doubled every day for a month is a lot. Have fun seeing them do that mental math in front of your eyes.
Spoiler: those numbers get big, and get big FAST. What starts as a humble penny at the beginning ends the month in style and largesse: over $10 million.
Don’t waste this exercise on only this, though. Use this lesson with an actual bank account. You can use the Greenlight app to create a General Savings account and give them “Parent-Paid Interest.”
This gives you the opportunity to set and pay an interest rate of your choice from 1-100%. This will usually amount to a rate better than you can get on any traditional bank account while showing your kids how their money grows when they make responsible saving decisions.
Each month, you can review the account to show how your child’s interest earns interest.
But wait! Don’t stop there either. Now, you can really connect the dots between compounding interest and compounding returns through investing.
While the money you earn through a bank account (or Bank of Mom and Dad with Greenlight’s Parent-Paid Interest) carries no risk and earns little interest, your child could grow her money faster through investing in the stock market. Though, this comes with additional risk.
Make sure whatever goal your kid chooses, the investment choice you make matches the timeline. If they have something near term in mind, consider a Certificate of Deposit (CD) or a bond fund.
If this is something 5-10 years down the road, go with a stock fund for more aggressive growth.
8. Consider a Stock Market Game
Younger children can start investing by using play money and tracking stocks and their portfolio management results. Online simulations can allow parents and children to discuss the rules and finer points of investing.
One online tool you might consider comes from the SIFMA Foundation, which offers the Stock Market Game. Their app works for children in grades 4-12.
Pair this with investment books for kids and they can learn about investing without putting any of their own skin in the game.
Though, transitioning toward real money will keep them interested more. They can follow a stock price in the real world and see how much money each stock costs.
You should consider starting with brands they’ll recognize and have an emotional attachment with to get them started.
9. Start with Companies They Know
When beginning to show your child about investing and teach about stocks, you might start with what you already own.
Major brands might get their attention and work well as stocks for kids—technology companies like Apple and Google, sports gear companies like Nike, and/or food and beverage companies like McDonald’s and Starbucks.
Click through the investor relations page of each company you’ve added to your consideration with your children and ask them questions about what they can find. Items like financial performance, employee headcount, management commentary and more.
Based on this stock analysis, ask your child what company they would like to buy. Kids often prefer certain companies even if they are unaware of the reasons why. Facebook and Disney, for example, are likely to be popular with most children.
10. Let Your Kids Invest
Once your kids understand the basics of investing, let them invest in a company. When your child gets older, you can choose to provide them with a more in-depth explanation of stocks and other investments.
If their bank account is growing steadily, this can be the perfect time to begin educating them about investing.
Though, instead of emptying their bank account completely to place it in the stock market, consider investing only a third in stocks, a third in bonds and keeping a third in savings.
Teaching children about investing can work best by having your child compare the returns of different investments like these. You can also change your portfolio allocation to align better with their financial goals.
If they primarily have short-term financial goals, short-duration bonds or a bank account are your best choice with only small amounts of their savings going into the stock market. Make sure you pick a suitable portfolio aligned with their goals.
It is easy to get your kids interested in investing by simply setting up a custodial brokerage account and giving them the option of how much money they want to invest on their own.
Check the stocks you selected from your company website due diligence weekly to show how their prices move up and down over time. Over several months, quarters and years, good stocks will appreciate in value.
Alternatively, you could also make an online portfolio and track stocks for fun without having to purchase shares.
If you take the time to talk to your children about stocks when they are young, they’ll understand how markets can have both ups and downs. This will help prepare them for the reality of fluctuations in the market and guide their decisions in the future.
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11. Open a Real Investing Account
You have several options for opening an investing account for a minor. Depending on your investing goals and desired use of the funds down the road, you’ll want to consider different options:
- 529 plans (Education). If for educational expenses, you might look into opening a 529 plan through a company like Backer. These accounts allow you to make after-tax contributions toward an investment account which doesn’t require you to pay taxes on gains if the funds go toward paying for qualified educational expenses.
- IRAs (Retirement). Believe it or not, starting kids early on their retirement works in their favor. Those compounding returns really kick in toward the end of their careers when contributions don’t do as much as on-going gains. If your child has earned income, strongly consider investing in a Roth IRA for kids, easily one of the best investments for kids (or as a grandparent: best investments for grandchildren).
- Custodial accounts (taxable investment). Custodial accounts are one of the most common ways to invest for minors. These accounts carry the name “custodial” because the funds will be controlled by a parent or guardian until your child reaches adulthood, at which point they can do whatever they want with those assets.
How to Open a Custodial Account for Kids
You have many different options for custodial accounts, including investing with a brokerage or bank. In the case of wanting to explain investing to a child, you will want an investment account for your kids. A simple bank account that earns interest won’t meet the mark.
Opening an investment account allows you to invest funds for the minor’s benefit, which can offer much higher returns than a savings account. So how do you decide which type of custodial account to open for a child?
There is no black and white when it comes to “the best account,” but there are some considerations that can help you make a decision for what will work best for your individual financial situation.
- Fees. This is one of the most common considerations when choosing an account. Typically, custodial accounts have low or no fees if you are a customer with a brokerage firm. You may find some that charge trading commissions while others opt for a monthly or annual fee and act as a free stock trading app within the account. Some even offer free stocks for signing up in the form of shares or a sign up bonus. Consider your preferred model.
- Account minimums. Before opening an account, look into how much you’ll need to make as an initial deposit and the minimum account balance you’ll need to maintain.
- Investment options. You’ll also want to think about the types of investment options you’ll have available. Some custodial accounts offer a wide range of investment choices while others provide guardrails with fewer choices but simplified offerings.
- Investment support. You shouldn’t need to be an investment professional with a minimum of ten years on Wall Street to manage your investments. However, sometimes you want a little help beyond your own knowledge or a simplified menu of investment options suitable for most people’s goal of opening an investment account for kids: long-term capital appreciation. (And if you wanted to jumpstart their retirement, maybe even a Roth IRA for kids to grow their money tax-free!) Some custodial accounts choose to shortlist what you can buy, others offer research and resources to make your own stock picks, while others provide you free personal advice and support. Choose the brokerage that meets your needs.
Now that you know what to look for in the best custodial accounts, below are some to consider for investing in stocks with your kids.
Some only allow the ability to invest in index funds as a means for placing guardrails on your kids’ investments while others allow individual stock investing.
|App||Rating (out of 5)||Fees||Best For||Promotions|
|Greenlight + Invest||4.7||$7.98/month||Teaching investing fundamentals with guidance from parents; allows individual and index fund investing||One month free|
|Acorns Early||4.8||$1/month - $5/month||Automated investing in the background into diversified investments||$10 sign up bonus when making first deposit at account opening|
|M1 Finance||4.3||$0 trading or automated investing; $125/year on M1 Plus subscription for custodial account||Fee-free active trading and automated investing||$30 sign up bonus with $1,000 deposit|
|EarlyBird||4.0||$1/mo if over $200 invested; $2/gift paid by gifter||Simple gifting and investing in a UGMA account for reasonable fees||$10 for opening an account|
|Stash||4.7||$1/month - $9/month||Everyday people looking to start managing their finances||$5 stock bonus for making a deposit of $5 or more|
|UNest||4.5||$3/month - $6/month||Age-based investments in custodial investment account||Matching bonus with $25 initial deposit ($25 bonus)|
|Firstrade||4.5||Free trades||Mutual fund and target date fund investors||Free account bonus commensurate with contributed funds|
1. Greenlight App
- Available: Sign up here
- Price: Free 1-month trial, $7.98/mo after for Greenlight + Invest
Greenlight + Invest is an investment account for kids that comes paired with a debit card.
It’s easy to use and can double as a savings account for your teens. The app will teach you the basics of investing, how to invest in stocks and ETFs, etc.
It works best if parents are involved in the process because it requires linked accounts from the custodians’ banks or brokerages.
The all-in-one plan teaches them important financial skills like money management and investing fundamentals — with real money, real stocks and real-life lessons.
You can use the investing feature to:
- Buy fractional shares of companies your kids admire (kid-friendly stocks)
- Start investing with as little as $1 in your account (with fractional shares)
- No trading commissions beyond the monthly subscription fee
- Parents approve every trade directly in the app on individual stocks and ETFs with a market capitalization of $1 billion+
Consider opening a Greenlight Card + Invest account to start investing in a custodial brokerage account for your kids today. The first month is free to trial the product and see if it meets your needs.
2. Acorns Early ($10 Bonus)
- Available: Sign up here
- Price: Acorns Lite: $1/mo, Acorns Personal: $3/mo, Acorns Family: $5/mo
Acorns offers a custodial brokerage account for parents interested in opening an investment account for their child called Acorns Early.
Acorns Early offers investment portfolios of various risk levels for kids, so you can feel confident in the account you’re opening up for your little one. This app can be a great way to teach minors how to invest money.
The best part about Acorns is that it doesn’t require any minimum deposit to get started and allows you to contribute money on a regular basis.
One of the best ways to invest $1,000 for their child‘s future is in a custodial account like Acorns Early.
3. M1 Finance ($30 bonus)
- Available: Sign up here
- Price: Free trades, $125 subscription to M1 Plus required for custodial account (waived first year)
M1 Finance is an all-in-one personal finance solution that allows new investors to set up an account in seconds. If you want to use this as a kids investing app, you’ll need to apply for an M1 Plus subscription. The company has a limited time offer of the first year for free ($125 value).
The service offers investors the ability to create Portfolio Pies, or a diversified portfolio that rebalances to help you achieve your money goals.
M1 Finance is a service designed for self-directed investors by offering flexible, customizable and automated financial solutions. The platform manages your money intelligently based on how you want.
Consider signing up for an M1 Finance custodial account or custodial IRA today.
4. Stash Invest ($5 Bonus)
- Available: Sign up here
- Price: Beginner: $1/mo, Growth: $3/mo, Stash+: $9/mo
Stash is an all-in-one financial management platform, complete with investing, spending and banking functionality.
The app targets individuals just starting on their financial journey by making everything covered on the app accessible to all levels of financial literacy.
With time, the app aims to build up your financial skills and make you confident with your ability to manage and plan your money.
By signing up, you also can receive a $5 bonus for making your first deposit on the app.
5. UNest ($25 bonus)
- Available: Sign up here
- Price: $3/mo: Regular, $6/mo: Family
UNest is a new custodial account that allows parents to invest money for their kids for needs beyond just education but events like a new car, a wedding, vacation or anything else a minor might want some day.
UNest even offers a free matching $25 sign up bonus for opening an account and making an initial $25 contribution.
- Available: Sign up here
- Price: Free stock/ETF trades
Firstrade is a leading online brokerage firm offering a full line of investment products and tools designed to help investors improve their financial position through sound investing practices.
One unique feature of Firstrade is that it allows minors to invest (with a custodial account managed by their parents).
As a result, I feature this as one of the best investing apps for minors to buy stocks. It’s a great resource for kids to gain early exposure to the stock market through a custodial account and to start compounding their money from a young age.
How to Talk to a Child About Investing
Kids are never too young to start investing! If you want your kids to learn sound financial practices and the value of delayed gratification, it might be time for them to get their hands on some stocks.
There is a wide range of custodial accounts available that allow minors (with parental consent) to invest in stocks.
We’ve highlighted our top picks above for you to take some time and consider what will work best in your family. All of them are affordable and some come with added features you want for developing a great sense of personal finance.
Investing as a minor has never been more accessible than it is today. Several resources help kids to learn about the practice and help from parents makes it even easier.
About the Site Author and Blog
In 2018, I was winding down a stint in investor relations and found myself newly equipped with a CPA, added insight on how investors behave in markets, and a load of free time. My job routinely required extended work hours, complex assignments, and tight deadlines. Seeking to maintain my momentum, I wanted to chase something ambitious.
I chose to start this financial independence blog as my next step, recognizing both the challenge and opportunity. I launched the site with encouragement from my wife as a means to lay out our financial independence journey and connect with and help others who share the same goal.
I have not been compensated by any of the companies listed in this post at the time of this writing. Any recommendations made by me are my own. Should you choose to act on them, please see the disclaimer on my About Young and the Invested page.