Here Come the Teens: They Can’t Vote, but They’re Old Enough to Buy Stocks.
By Daren Fonda
Ronak Davé, 16, started trading stocks a year ago. The high school junior now spends a few hours a day on the market between classes and at night./ Photograph by Evan Jenkins
Like many teenagers, Ronak Davé enjoys the videogame Roblox.
But he doesn’t play much these days, preferring to trade the stock instead.
He recently sold a stake in Roblox after holding it for a few weeks, notching a 25% gain, or about $200.
“I saw a pullback after looking at the technical patterns,” Davé says.
“I noticed some resistance coming back and thought it would go down.”
At 16, Davé isn’t your typical trader. A high school junior outside Chicago, he started trading a year ago and now spends a few hours a day on the market—checking his portfolio on his phone between classes, studying charts at night, and writing about stocks for other teen traders, posting articles like “Top 6 Reasons Teens Should Learn to Trade.”
Before making a trade, he often consults his chief investment officer—his dad—who helps him with the fundamentals and technical set-up.
“I like cars, so I have a lot of interest in car stocks,” says Davé, who is now eyeing Tesla (ticker: TSLA) and Nio (NIO).
His goals: saving for college, getting a golf scholarship, and eventually earning enough to buy his dream car, a Lamborghini Huracán Performante, which goes for about $330,000.
Teenagers aren’t allowed to do many things, but trading stocks isn’t one of them.
A new crop of mobile apps is making it a cinch to invest, trade, and follow the market, using custodial accounts or tunneling in through other means.
While teens might not have much to invest, brokerage firms are eagerly courting them.
Fidelity Investments introduced a “youth account” product last month for those ages 13 to 17.
The accounts come with a debit card, unlimited trading, and access to nearly the entire U.S. market, overseen voluntarily by parents.
“We created this with teens in mind,” says Jenn Samalis, a Fidelity senior vice president.
“We wanted to make sure we had an easy, simple learning experience for them to get started.”
Teaching financial literacy is a worthy goal, and teenagers—inspired by social media and meme stocks—may be eager to learn.
High schools now promote a “growth mind-set,” teaching students to view mistakes as opportunities.
Investing even small amounts can help demystify the markets and teach a bit about its mechanics.
But giving a trading app to kids might be like handing over the keys to a Porsche, without even a learner’s permit.
Formative experiences in the market could backfire, leading to more risk-taking later in life, or the opposite: fear and risk aversion.
Teens may also be vulnerable to the so-called gamification of stock trading and to stocks hyped on social media—the same forces fueling trading frenzies (and losses) among adults.
“Without custodial oversight, this is basically a bad idea,” says Laurence Steinberg, a professor of adolescent psychology at Temple University.
“There are all kinds of reasons why we don’t let 16-year-olds do certain things—because we don’t think they have the judgment, impulse control, and maturity.”
Young people take more risks when they’re with peers than on their own, he adds, and social media extends those influences well beyond a close circle of friends.
“If social media encourages people to invest with their peers, that will contribute to more risky decision-making,” he says.
How are young people trading these days?
Quite easily. A common way is through a custodial account opened by a parent, older sibling, or other adult.
Parents may also let their children trade by sharing login credentials for their accounts.
Minors aren’t allowed to open accounts until at least age 18, under state laws.
Yet there is no age minimum to trade once an account is open, and no federal regulations stop teens from owning securities or trading, according to Barry Barbash, a securities lawyer who once served as the top fund regulator at the Securities and Exchange Commission.
If a parent signs off on an account, as Fidelity requires, and signs a waiver, the parent is on the hook if any liability issues arise.
Fidelity’s youth accounts are like a standard brokerage account with training wheels.
Teens can trade all they want, but Fidelity restricts the types of stocks to U.S.-listed companies, doesn’t allow options or margin trading, and recommends capping annual deposits at $30,000.
Fidelity isn’t the only financial firm angling into the youth market.
Start-ups like Greenlight Financial Technology, Stash, and M1 Finance are also seeking to attract young investors.
Greenlight, a savings and investing app for the young, allows parents to open an account and add a child for access to trading.
“We wanted kids to do the research and propose an investment, and the parent then approves or declines it,” says CEO Tim Sheehan.
The subscription-based model has attracted three million accounts, he says.
The company recently raised $260 million in private financing, valuing it at $2.3 billion.
Financial-technology apps for the young raised $344 million in financing last year, according to Crunchbase, up from $98 million in 2019.
Stash CEO Brandon Krieg says the company now has tens of thousands of custodial accounts, set up for parents to invest for their children and help them learn.
M1, another investing app, launched custodial accounts last year and now has several hundred thousand accounts. The business is worth nearly $1 billion, according to CEO Brian Barnes.
Equity-market investors can tap into the trend with Acorns, a family investing and savings app that is planning to go public through a special purpose acquisition company.
The SPAC, Pioneer Merger (PACX), is valued at $2.2 billion.
Established brokerage firms and start-ups are marketing to teenagers for the same reasons that banks have long pitched accounts to children: building loyalty and acquiring the next generation of clients.
“It’s a customer-acquisition play,” says Nikhil Sharma, managing principal at the financial consulting firm Capco.
The educational tools and convenience help get parents and kids in the door, but the business model is based on a customer’s long-term value.
Customers are worth varying amounts, depending on how much they trade or invest.
While equity commissions aren’t major revenue sources anymore, brokerage firms still make money from securities lending, payments for order flow, and cash held in money markets or other types of accounts.
For brokerage houses, the long-term value of a customer is in providing financial advice or managed accounts.
As mass market customers move upstream, their lifetime value can be anywhere from $2,000 to $5,000, an industry consultant says.
Once they reach the mass affluent or high-net-worth segment, the lifetime value ranges from $15,000 to $100,000.
The younger a brokerage starts building the relationship, the greater the potential payoff.
“A lot of your brand loyalty—whether it’s to Fidelity, Cocoa Puffs, or Marlboro—will be based on how much you enjoy the experience when you’re young,” says Steinberg, the Temple professor.
Custodial accounts transfer automatically to a teenager at ages 18 to 25, depending on state laws.
If brokerage firms can build goodwill with the young, they have a better shot at capturing a customer at later life stages—going to college, getting a job, and saving for retirement.
The progression opens doors to fees on mutual funds, exchange-traded funds, and other financial products, along with advisory fees on managed accounts.
Once a customer reaches $1 million in assets, the lifetime value ranges from $43,000 to $83,333 in revenue, according to Michael Kitces, head of planning strategy at Buckingham Wealth Partners.
The stakes are high for brokerage firms, since they are facing more competition from fintech apps, banks, and others.
Square’s (SQ) Cash App has gained traction with millennials who use it to trade stocks and Bitcoin.
JPMorgan Chase (JPM) is marketing debit cards to children as young as 6.
“The earlier you build a customer relationship, the longer you have it,” says Cait Lamberton, a marketing professor at the Wharton School.
Even if a child has a bad experience on an app or doesn’t trade much, there is brand value in the familiarity.
“When it’s easy for our brains to process something, we misattribute that familiarity to liking it.
Your brain sees it and says, ‘This is easy,’ and that feels good.”
For Fidelity, opening accounts for young customers might help protect and expand a revenue moat, worth $21 billion in 2020.
It could build relationships with young people before they enter the workforce and start saving for retirement—a huge market for Fidelity as the largest administrator of 401(k)s, overseeing 33 million workplace plans overall.
Fidelity also has a branding problem it needs to overcome.
Teens’ loyalties may lie elsewhere—in apps and online platforms that didn’t exist a decade ago but are now surging in popularity.
“No matter what Fidelity does, it will be hard to be hip or trendy,” Lamberton says.
Indeed, Fidelity has long cultivated an image of financial rectitude.
Robinhood was heavily criticized for showering traders with confetti in its app (a feature that has now been eliminated), but Fidelity has never rewarded trading overtly.
And while apps like Cash and PayPal are expanding into crypto, Fidelity hasn’t started a platform for trading digital assets.
It is, however, seeking regulatory approval for a Bitcoin ETF, and it does provide crypto custody services for institutional clients.
“Showing up with a Fidelity app as a teenager is like wearing a bow tie to a rock concert—it just doesn’t work,” says Jim Lowell, editor of the independent Fidelity Investor newsletter.
Yet Lowell views the youth accounts as a smart move.
They could be a way for Fidelity to gather transgenerational assets in reverse—rather than targeting grandparents, going after kids, and building from there.
“Fidelity is playing very long ball, like hitting a home run from Boston until it reaches San Francisco,” he says.
One consideration for parents is taxes. An adult can gift up to $15,000 to a child each year, tax-free, but investment gains in a custodial account might be taxed at a parent’s ordinary-income rate, after an exemption on the first $1,100, and the next $1,100 taxed at the child rate.
Beyond the tax liabilities, there could be implications for college financial aid: custodial accounts may count as student assets, reducing need-based aid, while money in a 529 savings plan reduces eligibility to a lesser degree, up to 5.6% of the account’s asset value.
If there is an overarching challenge for teens and parents, it’s finding a balance between righteous investing and the thrill of trading.
Educational tools and demos are like eating the kale; inspiration may come from the Candy Crush: seeing an actual stock in your portfolio take off.
“You want to educate them?
Fantastic.
But you have to tantalize them with something sexy, which is large profits, not wisdom for the long term,” says Gary Schatsky, a financial advisor in New York.
By age 15 or 16, children tend to make decisions as well as adults under “cold” conditions—when they aren’t pressed for time or stressed in the moment, says Candice Odgers, a developmental pzsychologist at the University of California, Irvine.
But under pressure or influence of peers—conditions known as “hot cognition”—they are more likely to make risky choices.
And it isn’t until well into adulthood that decision-making becomes more rational and long-term oriented.
“Teens tend to be more shortsighted and focused on rewards than adults, and more likely to ignore the costs,” Steinberg says.
“If you put people in a brain-imaging scanner and show them piles of money, you see the reward center light up more in adolescents than adults.”
Even with guardrails, the influence of social media may be hard to manage.
TikTok, Reddit, Twitter, and other conduits are flooded with traders claiming to make fortunes.
According to a recent Wells Fargo survey, 45% of 318 teens said they were more interested in investing this year because of GameStop (GME).
“It won’t grab much attention if someone tweets a 1% gain in an index fund, but if it’s 40% in GameStop, that will get a lot of teens into it,” says Cary Frydman, a behavioral-finance economist at the University of Southern California.
Ideally, the young will learn the basics about diversification, investing for the long term, and avoiding risky trades.
But those lessons might have to overcome behavioral biases; we tend, Frydman notes, to absorb more knowledge about stocks we own than those we don’t, in part because of familiarity bias.
“If you’re biased to a volatile stock like GameStop, you’re less likely to learn about the advantages of index funds,” he says.
Some advisors say a better way to teach financial literacy would be to start kids off with a bank account, getting them in the habit of saving first.
“That will help them live financially literate lives as adults,” says Susan Zimmerman, founder of Mindful Asset Planning, an advisory firm in Minneapolis.
“They can then move from money-market accounts to conservative mutual funds.”
She adds that she’s “leery” of Fidelity’s youth accounts, partly because parents themselves might not have the tools to guide their kids.
“Some parents can be good mentors, whereas others might be hands-off, and this could become a lesson in how to lose money.”
Davé’s father, Amarish, says he opened a TD Ameritrade custodial account for Ronak partly to thwart information that his son was gleaning from social media.
“When I saw he was being influenced by TikTok and meme stocks, I wasn’t crazy about it,” says Amarish Davé, a neurologist.
“I’d rather know what information he’s getting and what he’s doing.”
The brokerage apps, of course, aren’t just tough for kids to resist.
Trading took off in the pandemic as people stayed home, received stimulus checks, and started dabbling in the market.
Trading volume soared at Fidelity, Charles Schwab (SCHW), and other brokerage houses.
And most apps are now commission-free, making it a snap to buy or sell without upfront costs.
With fractional trading, kids who might not have $3,350 for a share of Amazon.com (AMZN) can invest for $5. Schwab says that 15% of its “stock slice trades” are made through custodial accounts.
Investors can also buy fractional shares on Robinhood for as little as $1.
“The meme stocks pulled a lot of traders like me into the market,” says Noah Oxley, a 21-year-old college student in Florida.
Oxley started trading Apple (AAPL) after his 16th birthday, using a custodial account.
He recently helped his younger brother, 16, open a Schwab custodial account.
“I’m letting him run with it, but I help out,” says Oxley, who doesn’t recommend GameStop or other meme stocks.
Advisors say that giving kids freedom to lose a bit may be the biggest benefit.
Teens can test the waters with minor consequences if they fail, assuming they aren’t blowing their college savings.
Racking up early losses may eventually deter gambling with larger sums later in life.
“The sooner they learn that lesson, the better,” says Kathleen Malone, a senior advisor with Wells Fargo Advisors.
“That will stick with them far longer than the wins.”
Trading feedback is also instant with an app, and with real money at stake—rather than the tutorial and demos used for learning—the results can hit home.
“You don’t know what it feels like to lose 20% on a stock until you’ve experienced it,” says Lamberton, the Wharton professor.
“It’s tempting to say teens are irrational and don’t care about risk, but if they lose $45 of their $50 due to some advice from someone on Twitter, that’s a really nice quantitative signal.
Many other things that kids do have no immediate consequences.”
Esha Singaraju, 16, started investing last summer after noticing that friends were day trading on TD Ameritrade and Robinhood and talking about stocks like GameStop and Tesla.
“I wanted to learn about it and have more fruitful conversations,” says Singaraju, who lives outside Charlotte, N.C.
She now shares a Robinhood account with her older brother, owning stocks like Alphabet (GOOGL), Apple, and Microsoft (MSFT).
The portfolio was up 21% in the past year, she says. And she was bitten by the investing bug, joining a financial advisory firm as an intern and winning the Wharton Global High School Investment Competition with friends from school.
For Daniel Timmerman, a surgeon near Philadelphia, trading has helped form a bond with his son.
Timmerman started a year ago, opening a Robinhood account and making some money in Tesla.
That inspired his son Brewer, a rising 10th-grader, so Timmerman gave him access to his account and let him trade with $1,000.
Today, Brewer, 14, has positions in Tesla and American Airlines Group (AAL), along with some Bitcoin and Dogecoin.
He says he bought the Tesla and cryptos mainly because of Elon Musk’s influence.
His rationale for American Airlines was that it would be a good reopening play.
“I just thought that, after Covid, people would try to get out of the house,” Brewer says.
Daniel Timmerman says that his son has notched a 23% gain since he started trading.
More important, he adds, it’s a way for father and son to connect. “It gives us something to talk about on the ride to school,” he says.
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