Teenagers can now trade and save for free with Fidelity. What parents should be aware of
Fidelity Investments is expanding its fee-free investment accounts to a new group: Youngsters.
With parental permission and guidance, of course.
The investment firm announced Tuesday the Fidelity Youth Account, a brokerage account designed specifically for children ages 13-17 to invest, save and spend. Available to teenagers whose parents or guardians have Fidelity accounts, the accounts allow young people to save, buy and sell US-listed stocks, most exchange-traded funds, and Fidelity mutual funds.
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The account comes with a debit card and allows teenagers to trade with no account fees or commissions. Parents can oversee activities, which Fidelity says will help fuel personal finance and investing conversations with their children.
“Our goal for the Fidelity Youth Account is to encourage young Americans to learn through action and have meaningful family conversations on financial topics,” said Jennifer Samalis, senior vice president of acquisitions and loyalty at Fidelity Investments, in a statement. When the teen turns 18, the account will switch to a standard brokerage account.
The pros of this account
Younger investors have increasingly entered the market, have thrown themselves into the GameStop frenzy or have got Dogecoins.
But few investment firms take care of children – even Robinhood, the popular online trading platform, requires users to be at least 18 years old.
“Anything that starts a personal finance conversation in your home is great,” said Tom Henske, a certified financial planner, a financial advisor at Fifth Avenue Financial in New York. “Anything that inspires your kids to talk about or be interested in is only a good sign in the long run.”
Using an account like Fidelity’s can be a great opportunity to teach your child how to build good financial habits and give them some experience in the process. The Fidelity account gives kids more independence than other custody accounts, which is also a positive, according to Yanely Espinal, director of education outreach at Next Gen Personal Finance.
“As a teenager, it’s so exciting to have this agency and have access to your account,” said Espinal. She added that it is positive that the Fidelity account has no fees and no minimum balance as so many young people fail to realize that these penalties can result in savings.
“In the end, you learn the hard way,” she said of other reports.
This experience of practicing saving, spending and investing in a monitored environment with more guard rails is often missing in personal financial training – if young people get any at all.
“We tried to teach [kids] about money without money, “said Henske.
Getting started in solid personal finance habits and learning how to invest – including the jargon – will help kids in the long run.
“The reason you invest is to try to beat inflation and do it with compound interest,” said Henske, adding that these are “two of the most important things children need to learn.”
The disadvantages of letting your child invest
Of course, there are potential downsides to letting your children trade on the stock market. Exposure to risk-weighted assets can grow wealth over time, but it also opens up the possibility of losses for investors.
Henske’s only fear is that Fidelity’s platform will lead more young investors to focus on buying and selling individual stocks.
“It’s not practical,” he said. “As advisors to clients, we don’t even buy individual stocks – we buy ETFs, funds, managed accounts, and the like.
“Why do we spend so much time teaching kids how to buy and sell a single stock when they’ll never use it again in the future?”
He fears that losses could put the children under psychological stress and discourage them from investing.
Anything that starts a conversation about personal finance in your home is great.
Financial advisor at Fifth Avenue Financial
Of course there are some limits to protect children from excessive losses. According to Fidelity, there is a limit of $ 30,000. In addition, teens cannot trade options or margin-popular tools on other platforms that increase risk. Youngsters can also trade ETFs and mutual funds as well as stocks through Fidelity.
“I’m glad they don’t allow stock options,” Espinal said, adding that this can be dangerous and should only be available to more advanced investors.
Even with teens involved in stock picking, Henske says it may be better to make financial mistakes early on and in this type of account.
For one, the stakes will likely be much lower. “Better to go wrong with $ 250 than with $ 250,000,” he said.
Mistakes also give parents an opportunity to discuss money with their teenagers and share their own mistakes.
“I think it helps to be vulnerable and to say that I made the same mistake,” said Henske. “We all made financial mistakes.”
Invest with your teen
Using an account like Fidelity’s can be a great way to have a conversation about money with your teen and even learn about finance together.
While Fidelity’s youth account offers some educational information about saving, investing, and spending, using the product is not parenting outsourcing, according to Henske.
“You have to be involved,” he said, adding that he has a 14-year-old and a 17-year-old and sees learning about money and investing as critical to their development.
Parents with teenagers who have an investment account should check in frequently to see how they’re doing and what decisions they’re making, Henske said. He also suggested parents invest with their teenagers by giving them some cash to get started.
“It gives you permission as the owner to say what’s going on,” he said.
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