How to Invest Money as a Teenager

Most everyone says the same thing about investing: they wish they’d gotten started earlier. While we can’t go back and change the past, we can absolutely give the teens in our lives a leg up by getting them started early with investing—and one way to do that is by setting up a custodial account.

Custodial Accounts for Teens

A custodial account allows the adult who opens it to invest in and trade a range of investment products, including stocks and ETFs, on a teen or child’s behalf. So how does that translate to a teen investing? Teens can help you, the adult, decide which investment products to buy and trade, which helps them learn how to invest money as a teenager—and they can walk through the entire process with you to actively experience all the ins and outs of investing. These ins and outs will become easier to understand and less mysterious as they get more practice with them—practice that may include using trading tools and learning how to access or reference educational material pertaining to your assets.

Many investment banks and traditional banks offer custodial accounts for adults interested in saving for college or other expenses that can benefit the kids and teens in their life. Institutions that offer these accounts often create educational content too, which can help enterprising young investors learn more about the world of finance—including how to start investing as a minor. Some companies offer personalized experiences and guidance on investing basics—such as exploring the differences between a stock and a bond and learning to make sense of what purchasing a stock actually means.

The big picture? Empowering teens to learn about investing—and exercise some control over their custodial account investment portfolio—can spur an interest in finance and give them valuable experience in managing money.

Rules for Custodial Accounts

Also known as UGMA/UTMA accounts, custodial accounts may have specific guidelines determined by your bank—but there are some general rules to keep in mind:

• Custodial accounts are for kids. The money belongs to the designated child or teen as soon as you open the account—and custodians hand over the reins when a child reaches adulthood, which is typically between 18 and 21 years of age, depending on state law.
• The funds must benefit the child. Funds in a custodial account must go toward purchases for the child or teen, and they can’t be used for your own personal expenses.
• Beneficiaries can (eventually) use the money as they see fit. Once a child or teen gains control of the account, they can use the money for anything they want.
• Taxes may factor in. As of 2022, a custodian can put up to $16,000 into the account without triggering what’s called the gift tax—and for married couples, this amount is $32,000. Additionally, the first $1,150 of unearned income qualifies for the standard deduction, with the next $1,150 taxed at the child’s tax rate—and anything above $2,300 taxed at the custodian’s normal tax rate. But none of this should not be construed as tax advice—for specific questions regarding your own tax situation, please consult with a tax professional.

Stash101 and Custodial Accounts

Learning about investing can help the teen in your life get familiar with important concepts about money and personal finance. And there’s more than one way for teens to get started with investing—in addition to learning with you through a custodial account, teens can get hands-on investing practice with Stash101, a (free!) simulated banking and investing platform used in schools and coming to homes soon.

The Benefits of Starting Young

Starting to save and invest at a young age can help kids learn to understand relatively complicated topics, like market fluctuations and earnings reports—things that many adults also struggle to grasp. Plus, there are practical perks to getting started early, such as the potential growth a portfolio can experience over time thanks to compound interest.

Practicing with a custodial account and Stash101 can also help young investors learn to understand economic and financial basics of the market, such as the S&P 500, various investment strategies, and so on. And a little learning and investing now can go a long way in the future—it’s never too soon to start!