Teaching Kids About Finances: Investment Accounts for Kids

Kids are expensive. According to the USDA, raising a child can cost well over $200,000, not including the cost of college. Investing for their future is important, but teaching them smart financial habits, including how to invest for themselves, can give them a head start—and give you some financial breathing room.

Credit.com’s Tips for Teaching Kids about Investing

A mother helps her daughter learn about investment accounts for kids

1. Start with Savings

If your child is very young or new to the concept of managing money, you might want to stick to the topic of saving money at first. In order for these lessons to be most effective, it may be helpful to give your child an allowance for chores they complete. This way they can learn how money is earned and better appreciate saving and investing it.

>> See how we recommend breaking down the discussion of money.

Beyond the basics of earning money, start by explaining these ideas:

  • Money isn’t infinite. That means no one has unlimited supplies of money, and you have to decide what you will spend yours on.
  • Save money for future purchases. If you want something that costs a lot of money, you may have to save the money you have now and add to it over time.
  • Save money for unplanned needs. Set money aside to save for later even if you don’t have a specific item in mind to buy. This way, when you need or want things in the future, you have the money already saved.

Open a Basic Savings Account

Help your child open a savings account online or at your local bank. Online savings accounts can have higher interest rates and lower fees, but brick-and-mortar banks offer a hands-on experience. Determine which would be most helpful for your child before opening an account with them. In most instances, children cannot open their own account until they are 18, but most banks will allow you to open a joint account, a minor account, or a custodial account for your child.

Teach Them Patience with a CD

Now that they understand the basics of savings and building interest, open a Certificate of Deposit account with a higher interest rate. The time requirements placed on these accounts, along with the higher interest rates, can help your child better learn the time value of money. Since they won’t be touching the account often, an online bank with higher interest rates could be a good way to go.

2. Move Up to Investing

In most cases, individuals need to be 18 or 21—depending on where you live—in order to open their own investment accounts. Before that, they’ll need what is called a custodial account. You’ll open the account with your child and be the custodian of the account. Once they reach legal age, your child can take over the account themselves.

Before you get started investing, go over some basics.

  • Investing means putting your money into something that you believe will grow in value. That can include buying a collector’s edition toy that might be worth more in a few years. It also includes buying stocks or investing in a money market account.
  • You don’t always make money when you invest. There is some risk involved because no one knows what the future will hold. Some types of investments are riskier than others.
  • Diversify when you invest. Explain the importance of diversifying your investments to mitigate your risks. That way, if one investment doesn’t work out well, you didn’t lose all your money.

Open a Roth IRA

If your child has taxable income from a job, they can start contributing to a custodial IRA. This can be a Traditional or Roth IRA, but Roth IRAs offer some specific advantages for teenagers. Roth IRAs are taxed at their current tax rate—which is likely much lower now than it will be when they are ready to remove the funds. Since they are paying (lower) taxes now, they can get the funds tax-free once they are ready to retire.

This type of investing may feel boring, but explain how they can potentially see big returns on their investments by the time they are ready to retire. Even if they don’t understand the value now, they’ll appreciate it when they’re older.

Let Them Experiment with Microinvesting

Once your child is ready to move on to more complex lessons about saving and investing, consider investment accounts for kids through apps or microinvesting options. Many options require users to be 18, but some—such as Acorns Early—offer custodial account options that you can set up and help your child run until they’re legally able to control the account on their own. These microinvesting accounts allow young investors to invest their spare change and learn the basics of investing quickly and easily.

Teach Them to Invest in Stocks and Mutual Funds

You can also set up a custodial brokerage account and start investing in stocks and mutual funds with your child. You’ll need to do the actual investing and trading, but your child will get control of the account once they turn 18 or 21 and should be involved in the process now so they understand how to manage it once it is theirs. If you already have a brokerage account, talk to your advisor about opening a custodial account for your child as well. Where possible, choose an account that allows your child to be hands on so they can learn how to manage the account themselves later.

Tools for Teaching Money Management to Children

Teaching your kids to invest is a smart part of money management for children. Helping them learn how to save now better sets them up for financial success in the future.

Investing isn’t the only important strategy for financial success, though! Teach your child about the importance of building and protecting their credit score, as well. If they’re 18, they can get their free credit score with a Credit.com account.


Note: Investing involves risk and can have tax implications. Consult with a financial advisor before opening an investment account for yourself or your child.

You Might Also Like

A woman sits at a large desk in front of an open laptop. Her head rests on her fist and she is looking up thoughtfully.
Are you new to investing? Not sure where to start? Investing for ... Read More

March 16, 2021

Investing

A young man wearing glasses looks at his laptop learning how to invest in stocks.
In 2020, around 55% of American adults invest in the st... Read More

March 16, 2021

Investing

A man in a suit and tie works on his cellphone and laptop at the same time.
The coronavirus bear market might look appealing to some. But for... Read More

March 16, 2021

Investing

Credit.com receives compensation for the financial products and services advertised on this site if our users apply for and sign up for any of them. Compensation is not a factor in the substantive evaluation of any product.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.



Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team