Best Investment for a Teenager

The Best Investments for a Teenager

Advertiser Disclosure This article/post contains references to products or services from one or more of our advertisers or partners. We may receive compensation when you click on links to those products or services.
Last updated on October 27, 2020 Comments: 26

It’s never too early to start investing. In fact, we wish high school students invested even a little. So here are some tips on how to invest as a teenager.

It doesn’t hurt to start talking to even young kids about investing. But when they’re teenagers, the can–and should–get hands-on experience.

Like many other kids in the 1980s, I played the Stock Market Game in elementary school. I learned nothing about investing, but I learned that adults checked the newspaper every day and worried over IBM being down an eighth. It wasn’t a great introduction to long-term investing. In fact, it was no introduction at all.

One private high school thinks it’s doing the right thing by giving its teenage students $100,000 to play the Stock Market Game using real money from other people. They say it’s preparation for a life in a potentially lucrative career in money management. And if your annual earnings are in the mid-six figures, saving for the future is technically easy, even while living a flagrant lifestyle. But that’s not a great way for middle-class or socio-economically-challenged teenagers to learn about managing their own money.

You don’t learn much about managing money if the money you’re managing isn’t scarce. There’s no scarcity when a private school raises $100,000 for you to play with.

So what’s a parent or educator to do? I’ve got some ideas.

Earning Their Own Money

Parents with an eye on their children’s financial future often want them to start working early. Then, they can earn money on their own. Work, in and of itself, is an important experience to gain.

Of course, education is the most important work for any teenager. So they should only work as long as it doesn’t interfere with their education. (Unfortunately, the realities of poverty may favor earning money for the household over doing well in school. But whenever possible, parents should prioritize teens’ education over money-earning work.)

Even still, school breaks provide excellent opportunities for different types of work. And if a teenager shows no inclination towards extracurricular activities, a job after school is a good alternative.

On my first day on the job at my first job during high school, I learned what others might consider an obvious lesson. After being hired, I was to start my first day at Radio Shack in central New Jersey with an orientation with a regional supervisor. I showed up in jeans in a tee-shirt and the manager sent me home. I should have known that there was some kind of expectation to wear something nicer, like slacks and a button-down shirt. But for some reason I didn’t make the connection. So I came back the next day with a better understanding of expectations for my appearance.

Today, I work from home in comfortable clothing, so after twenty years, I ended up getting my way. But the point is that working as a teenager can provide experiences and knowledge that help later in life when it comes to assimilation into a career culture.

One of those lessons is what to do with money you earn from that first job. I saved some of it, but I didn’t do what I should have done–invest a portion that I wouldn’t touch for years. Some of it ended up helping me pay for college, but it was a small amount. I probably would have been better off investing it for the longer term.

Learning to Invest

For hands-on experience dealing with money, parents can help their teenagers set up a variety of financial accounts. Here are the best options to consider:

1. Microsaving Apps

A recent revelation in the world of personal finance, Microsavings apps are the perfect gateway to gently ferry your kids into the world of financial responsibility. These apps will generally round up purchases you make and automatically invest the difference. So the next time your teen buys a bubble tea for $4.50, the microsavings app will round it up to $5 and invest the extra $0.50 in the stock market.

Our current favorite microsavings app is Acorns – they have basically no minimum deposit and very low monthly fees.

2. A Roth IRA.

Every teenager with a job should start a Roth IRA. You invest in a Roth IRA with after-tax income. Because teenages’ marginal tax rate will never be as low as it is while flipping burgers part-time, a Roth IRA is a perfect vehicle for investing. The minimum investment to open a Roth IRA at Vanguard is $1,000 and at Fidelity is $2,500. So until the teenager has saved that much, socking money into a high-yield savings account is a good choice.

Some accounts waive the minimum opening amount when you set up a monthly automatic transfer from a savings or checking account. Check for this option, where possible.

The best place to open a Roth IRA for a teen, in my opinion, is Betterment. It’s very easy to use. You can start with as little as $25. And it’s a great way to learn how to invest.

3. Savings and checking accounts

Some online banks offer higher interest rates than traditional brick-and-mortar banks. But with the money a teenager is earning from a part-time job, interest rates aren’t a huge concern. The purpose of these accounts isn’t to earn interest, but to help the teenager learn basic financial skills. It’s possible to get an account in the teenager’s name. But most banks will have the parent or guardian co-sign on the account, just in case.

Recommended Checking Account for Teenagers (age +13)

 axos Bank

The best way to teach your children money management is by giving them the tools to manage their own money. With Axos Bank First Checking™  account, your children get first-hand experience managing their own money but it’s paired with  the security of a joint checking account. The best part is that this account is geared towards teenagers. First Checking™ accounts offers banking features that will “bring to life” concepts like deposits, interest rates, spending, balance management, and more.

If your children are 13+, open a First Checking™ account today and set them on the path to financial freedom and literacy. For more information, please refer to our full Axos Bank Review.

Another option is a Money Market Account – basically the best of both worlds between savings and checking accounts. Here’s our favorite right now:

4. An index mutual fund

Once the teenager has saved enough money to open a Roth IRA with a minimum investment, he or she can choose the investment. A Roth IRA isn’t an investment in itself; it’s an account for holding investments. An index mutual fund is a great first choice. And a portfolio comprised completely of index mutual funds is a good idea for adults, too. Index mutual funds are low-cost and do not attempt to beat the market — an expensive endeavor that has never been shown to work over moderate lengths of time.

One of the cheapest ways of buying an index mutual fund is through Stockpile. With a free sign up, only $0.99 per trade, and no monthly fees, this is a great avenue to consider when introducing your kids to investing.

5. Investing in a business

If the teenager has any money left over after meeting the above goals and spending on any wants or needs, one interesting approach is giving him or her the opportunity to invest directly in a business. But be careful here. Such direct investments are a way for people to take advantage of young, impressionable teenagers.

Over the years, I’ve heard many cases where parents borrow money from their children to start a business destined to fail. You wouldn’t think teenagers would have a hard time saying no to their parents, given the rebellious nature of adolescence. But when a parent appears to be in need, even the most angsty teens want to help their parents.

Investing in a business directly is always a dangerous option. It’s true that failure can teach a strong lesson. But the cost can also be high, especially if the business is owned by a parent or someone else the teenager is close to.

So the best option here might be allowing the teenager to invest directly in a business opportunity of their own. Not every teenager will want to run their own business long-term. But giving them the opportunity to try it can he helpful.

The plan with this option is to take some of the money earned from that part-time job during school or over school breaks and use a portion of the funds to set up a business that aligns with the teenager’s passions and interests. If the teenager is interested in mowing neighbors’ lawns for money, have him invest in his own equipment. If she wants to house-sit, she should consider doing more than just offering services to friends and family. Invest in advertising, and perhaps form a local organization that can dispatch anyone from a team of sitters.

In this way, teenagers can leverage their own expertise to make more money. Then, they can continue investing some back into their growing business while putting the rest into the goals named above.

What kinds of investments should teenagers make with the money they earn from jobs while in school?

This article was originally published in 2013. The Consumerism Commentary editorial team thoroughly updated it on February 25, 2019.

Article comments

26 comments
Wendell says:

I’m 18 and I have $20,000 and I was gonna save it to buy a house when I decided to move out but id like to make a passive income with it and I have no clue what to do

Alicia Ndlovu says:

you have done pretty well for yourself. i am 16 and i would like some advice on how to start investing and the right places to start.

Lew says:

I teach high school personal finance and I was wondering what software you would suggest to utilize to teach high school students about investing. As you know most schools are dealing with budget cuts. HR Block had an excellent FREE program. They recently took away the FREE aspect and now schools are scrambling to find other resources. Any ideas would be much appreciated.

doesntwanttotellu says:

hello is 100 dollars enough to start investing???

Jake says:

Nothing is too little to start. Im 18, and invested $340 dollars in individual stocks. Since my account inception, it has grown to $560, even with the pandemic. If you are interested in which stocks I invested in they are: Beyond Meat (BYND), American Airlines (AAL), and Activision-Blizzard (ATVI). From one teenager to presumably another, do not be scared to start. Even if you only have $10

Misheck says:

Educative indeed. Do you have any specific African investing models for kids. I would really appreciate.

Blaine says:

What i could see being implemented is a checking our savings account. One issue i had with this article was it was too long with a decent amount of information I didn’t really need too know it wasn’t necessary. A app that allows me too invest in things is called acorn and its a popular spare change app that you can start investing on. It only cost 1 dollar a month too join. The best thing a teenager can do to invest is get a savings account because you can place as much money in there as you want and you can take it out whenever. The author thinks you should place a lot of money in a savings account or checking account until you need it for college or medical emergency.

Jess says:

Hello, I’m a thirteen-year-old girl currently interested in investing a bit of my money, roughly $500, but I have no idea where to put it. My mom and I are currently thinking about putting it in a mutual fund such as Fidelity. Should I continue with this or put it into a ROTH IRA? I have a certain disease that stops me from using life insurance because I’m a high risk though since I’ve been pretty well with my disease we might be able to get around it.

Teresa says:

Fidelity doesn’t have fees and doesn’t have a minimum to get into a Roth; that is where I helped my daughter set up her first IRA and never had a problem with starting it with $100.

Ron Lederle says:

I am passionate about helping young people to start investing, before the age of 18. Looking for a few ideas.

Mark G says:

“socking money into a high-yield savings account”?? really?? can anyone name a “high-yield savings account”?

S says:

I’m 14 years old and want to invest but I live in a poor country that doesn’t have a post station so I cannot buy/sell stuff online

Cat says:

Hmm You can try buying and selling virtual things for profit. Many people want to buy game bundles and computer softwares even e-gift cards and virtual coupons. Or try Fiverr where you could do a service for money like talking on the phone, being someone’s virtual email assistant or even designing a logo or drawing a cartoon etc if you are creative. Then you can save up to one day move from your town to another area with more job opportunity and a post station. Good luck to you!

Chip Rohlke says:

My dad put $500 into Fidelity fund for me when I was born in 1954. By 1972 it was $4000 and going to Florida Tech I blew it trading with h my dads broker and Merrill Lynch at $100 a trade!!
Today it would be worth $1,000,000 or more.
Dumb me but I never learned my lesson and lost fortunes in the market.
I’m 100% in real estate and doing great.
However I’m setting up a Roth IRA for a 14 year old and telling him he can’t touch it till he’s my age!!!

Omkar Nath Singh says:

Thanks for your this meaningful article. It is more helpful for us…

Jesse says:

I’m confused…you say Betterment as a great option for teens, yet I asked them and they said you have to be 18 or older to open an account with them…?

Anonymous says:

We all know that in finance, the earlier, the better. In fact, I highly encourage teenagers to start investing. It does not need to be big. They can start small and work their way up as they start to get a job. The best option for me is mutual funds as it takes out the guess work in investing and helps teenagers test the waters.

Anonymous says:

You should check the situation in Poland. We do not have any forms of practical lectures. Education does not prepare children for the problems to be meet when reaching adulty. We only learn facts, figures and dates. That’s pretty bad. People get older and they know nothing about life.

Anonymous says:

I think there is a big overlooked one here. Teenagers should invest is in their future through some form of additional training. While not everyone needs college there are many advanced learning programs or trade groups that will lead to a much improved financial situation down the road.

Anonymous says:

Very good point! It was also mentioned to some degree in the article. Teenagers should definitely learn about money but their main focus should always be education and training.

Anonymous says:

I like the idea of a teenager investing in a business. However before they invest in that business, require them to take a business class. Possibly an online business class so they can have some business sense before investing in a business even if it is a business as simple as mowing lawns. I just wanted to make that one important point.

Oh and require they also pay for the class with their own money.

Anonymous says:

I have honestly never found business classes as applicable as people think, aside from the legal guru of the business world. I grew up in a family business with 5 total stores, and since have played a vital role in some much more lucrative, bigger businesses. Throughout this time, I learned one of the most important parts of business is the relationships, and the ability to develop a relationship. I think a great means of education on people skills or relationship building is either a public speaking class or an internship with an office such as an Edward Jones. Nothing beats the real world experience. Someone can learn everything about something, but they don’t know how it truly works until they get there hands in it.

Anonymous says:

I played a similar game using a fantasy portfolio when i was 16 during an economics and finance class. It helped me develop a life long fascination with the stock market and investing.

Anonymous says:

If we’re assuming there will be no debt upon graduation? I think a Roth is a great place to start.

But investing in a business is a close second for me, this is the time to take those chances!

Anonymous says:

Getting a nest egg is important, but eliminating debt should be an equal endeavor. You have a hard time getting ahead when you are paying interest. College loans are the exception and should be slightly delayed to accumulate cash. Graduate from college, save some and pay off auto loans quickly because auto repairs and replacement are reoccurring. Early saving and investment is essential because waiting until all loans are paid will rarely ever allow time for investments to grow long enough. Invest early and keep it in investments periodically balancing between equities and real estate ( if possible).

Anonymous says:

I think you hit on the main ones. Starting with a Roth could be a great way to get started investing and really put time on their side. I think the problem would be to motivate them to put that money away when they might be tempted to spend it on something fun instead. That said, I think with proper teaching and allowing them to get their hands dirty investing it really could reap some solid benefits long term for them. I’ve heard you can “hire” your child as early as age 7 if you run your own business. Assuming that’s the case, we plan on doing that with our daughter next year and start her with a Roth.