How To Start Investing In High School

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I get asked a lot about ways to get started investing in high school. That's a tough question, because I'm a firm believer that you should start investing as early as possible.

However, it's really a bad decision for minors to own stocks. But I also get it - letting them invest in a stock is a great way to teach about ownership in companies.

I think if you're going to teach children how to invest, you need to start with how investing via a low cost index fund is the way to go (just look at Warren Buffett). Only then should you teach them to look at individual stocks.

So that doesn't mean that you can't get started investing in high school! It just means getting them started the right way investing in high school!

If you're not in high school, look at some other articles in the series:

• How To Get Started Investing In College
• How To Get Started Investing In Your 20s After College
• How To Get Started Investing In Your 30s

Here are some things to consider if you're 16 and want to start investing.

Table of Contents
The Legalities of Investing as a Minor
The Real Aspect of Investing in High School
Where To Open A Brokerage Account In High School
Impact On Financial Aid
My Story

The Legalities of Investing as a Minor​

First, I'm not a lawyer or tax advisor, so consult all the applicable professionals before doing anything related to opening accounts. I can, however, tell you the following truths:

• Minors can own stocks in their names (contrary to popular belief).
• Minors cannot open a brokerage account, because they cannot sign legally for themselves and transfer agents cannot accept the signature of a minor to complete any transactions.
• Minors can have custodial accounts (UGMA accounts) opened in their name.
• Minors can have a Roth IRA if they have earned income.

This may sound counterintuitive, but realize that there is nothing to prevent a minor from owning a stock. However, the minor cannot complete the transaction on their own — they have to have their legal guardian do it. If the stock is in the minor's name, neither the guardian nor the minor can conduct any transactions with it.

That's why UGMA accounts were created. The assets (stocks) held in the account are in the minor's name, but the trustee listed can conduct transactions on the minor's behalf until they are of legal age to conduct transactions for themselves.

Related: The Best Custodial Accounts To Start Investing

How can minors open a Roth IRA then? Well, technically the Roth IRA is just an account . . . so there doesn't have to be any investments made. The only qualifier for a Roth IRA is having earned income that meets the specified adjusted gross income (AGI) limits. Just like the UGMA account, a parent or guardian must act as the custodian until the child is of age. The other great part of the Roth IRA is that it doesn't technically matter who contributes — so a parent or other relative could also contribute to the Roth IRA on the child's behalf.

The Real Aspect of Investing in High School​

Skipping the legalities, most teens just want to experience investing. Parents and teachers can help with this.

At Home​

At home, if children have accounts set up in their name, start letting them see the investments and even having a say in the decision-making process. This can be a great teaching opportunity, and can also teach real responsibility. Letting teens start to handle their own investments will set them up for long-term success.

If they don't have an account, maybe now is the time that you open one for them to invest in. Let them learn about the stock market and actual investing. If they have some money saved up, you can open them a UGMA account if they have no income, or a Roth IRA if they have a summer job that paid them W-2 or 1099 earned income.

Then, let them research and invest in a company or index fund of their choosing. Help them monitor their positions, and teach them about dividends, capital gains, and taxes.

Finally, I also recommend that parents share their own investment accounts with their children and explain to them what they are, and how they work. Show them your 401(k), IRAs, brokerage accounts, and anything else you have. Information is power, and teaching your kid how to invest early is a smart move.

Investing in High School​

We've highlighted here colleges that have hedge funds, but now, many high schools are opening funds for their students to learn and invest in. Plus, FINRA has a 4-H program that is designed to educate high school students on investing, stocks, and other aspects of personal finance.

Programs like these can get your high school student starting to think about investing, and do it in a way that is legal, and useful!

Where To Open A Brokerage Account In High School​

The tricky part of investing in high school is where to actually do it. You can't just open a Robinhood account and start (they don't offer UGMA accounts).

You'll typically want to go with one of the big names:

• Charles Schwab
  
• Fidelity
  
• Vanguard

Each of these places allows you to open a UGMA or UTMA account. Honestly, both Schwab and Fidelity have solid options as well to make investing easy, app-based, and perfect for high school-aged children.

See our full list of the Best Custodial Investment Accounts >>

Impact On Financial Aid​

It's important to note that investment accounts owned as a UGMA/UTMA are considered a child's asset when filling out the FAFSA. These accounts will have the largest impact on financial aid eligibility.

However, don't get scared. Having $2,000 or $5,000 in a child's brokerage account isn't going to derail need-based financial aid. Now, if these investments grow to a sizeable level, it's expected that they will be used to pay for college in lieu of need-based financial aid.

You can run a financial aid calculator to see the impact of the child having their own investments.

My Story​

I know when I was in high school, my parents showed me and gave me access to several UGMA accounts that were opened in my name by my grandparents when I was a baby. For the most part, that money sat there and my parents didn't do anything with it. However, they taught me how to track the performance of the funds, and helped me set up Quicken for the first time. I was hooked on personal finance ever since.

I strongly recommend getting starting investing in high school, even if you only have $100 to start. Understanding by doing it is so important. It also put me on the track to financial independence in my 30s.

The earlier you can start investing, the better it will be for your children to learn how to build wealth.

What are your thoughts on getting started investing in high school?​

Editor: Clint Proctor

Reviewed by: Danny Cieniewicz, CFP®, CCFC


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