Learn/Kids & Teens
Kids & TeensIntermediate6 min read

Teaching kids to invest

Custodial accounts, age-appropriate investing, and the best first investments for young people.

Most adults are afraid of investing because nobody taught them when the stakes were low. A 12-year-old with $200 in a custodial account who watches their money go up 15% and then drop 10% learns more about market behavior in six months than most adults learn in a decade of reading articles. The goal isn't to make your kid rich — it's to make investing feel normal before they have real money to manage.

Custodial accounts: UTMA vs. UGMA

  • UGMA (Uniform Gifts to Minors Act) — allows adults to open a brokerage account on behalf of a minor. Can hold stocks, bonds, mutual funds, and cash.
  • UTMA (Uniform Transfers to Minors Act) — same thing but broader. Can also hold real estate, patents, and other assets. Available in most states.
  • Both transfer full ownership to the child at the age of majority (18 or 21 depending on the state). You cannot take the money back.
  • The first $1,300 of investment income is tax-free. The next $1,300 is taxed at the child's rate. Above that, it's taxed at the parent's rate (the 'kiddie tax').
  • UGMA/UTMA assets count heavily against financial aid eligibility. If college aid is a concern, consider a 529 plan instead for education-earmarked money.

Age-appropriate investing lessons

  • Ages 6–10: Let them pick a company they know (Apple, Disney, Nike). Buy one share. Check the price together monthly. The goal is ownership and curiosity, not returns.
  • Ages 11–14: Introduce the concept of index funds. Compare their single stock pick to a total market fund over the same period. Talk about diversification in concrete terms.
  • Ages 15–17: Open a custodial Roth IRA if they have earned income. Discuss the difference between speculation and investing. Let them experience a market downturn without selling.

The best first investments

  1. A total stock market index fund (VTI, SWTSX, FSKAX) — broad diversification, rock-bottom fees, no decisions to make.
  2. An S&P 500 index fund (VOO, SWPPX, FXAIX) — slightly more concentrated in large companies but equally simple.
  3. A single share of a company they use daily — not because it's optimal, but because ownership of something tangible creates engagement.
Avoid teaching investing through stock-picking contests or day-trading simulators. They teach speculation and gambling instincts, not investing. The most important lesson is that wealth builds slowly through consistent ownership of diversified assets — and the hardest part is doing nothing during a downturn.

Put this into practice

Worth tracks your accounts, budgets, and goals — so the concepts in this article aren't just theory.

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