A parent’s complete guide to investing for kids

Some people go their entire lives without investing a dime. Others make it their livelihood. The thing is, it’s not talked about enough — especially with kids. Whether you’re an investor yourself or the stock market makes you shudder, we’re here to tell you that your kids can invest with your guidance. And together, we can debunk the myths and navigate this crazy world of stocks, tickers, and everything in between. 

Welcome to your complete guide to investing for kids.

What is investing?

Let’s get right into it. Investing is a way you can grow your money over time, build wealth, and earn more income. With Greenlight’s investment app, your kids and teens can learn to invest in the stock market with stocks and exchange-traded funds (ETFs).

When you buy a stock, you become an owner of that company. When you buy a share of an ETF, you’re invested in a collection of investments, depending on which funds you choose. 

Why invest?

Because there is an element of risk to investing, some wonder why invest when you can save instead. Saving is important, especially for a rainy day, but investing can help you build wealth. That’s because historically, investing in the stock market has made money over time.

Visualize. Think about gardening. You could plant one seed, hoping to grow one tall and beautiful flower to admire every day. Or, you could plant hundreds of seeds, try different fertilizers, test out different weather conditions, and eventually (hopefully) grow a big garden.

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Why invest now?

You may think your kids aren't ready to learn about investing yet. Or you don't know if they're interested.

Maybe they have a dream car in mind or they plan to go to college. When kids start learning to invest early, they have the chance to grow their money and achieve future goals.

Let’s talk about the magic of time. Show, don't tell, your kids that time is everything — especially in the world of investing.

Money you earn from investments also starts earning over time. Here’s an example: If a teen invests $150 per month with an 8% annual return starting when they are 16 years old, they can watch it grow to more than $1 million by the time they are 65 years old. And surprisingly, the $150 they set aside each month equals less than $90,000 of that. 

Waiting just 5 more years — until the age of 21 — would grow to $250,000 less at age 65 without the 5-year head start. And only about $10,000 less original contribution! All thanks to compound growth.

How can kids invest?

Before Greenlight, it wasn’t always easy (or possible!) for parents to send money to their kids instantly. With the app, parents can send money with one tap while their kids learn to spend wisely, set savings goals, earn more with chores, and even give to charities.

Next, Greenlight added an investing platform, with no fees for trades and the ability to buy fractional shares for as little as $1, making it possible to manage money all in one place. When it’s the right time for your kids to make an investment, they can use their app to research stocks and ETFs and decide what they think will do well in the future. Expert analysis is there to help them decide if it’s a fair price. Then, they can propose a trade in the amount of their choice for your approval. 

With the Greenlight app, your kids can explore the stock market and become knowledgeable and confident as they track the progress of investments.

What kind of investor will they be?

When you create an investor profile in your Greenlight app, we ask a few questions. Your kids (or maybe even you!) may be wondering why we ask these things. Based on the answers, we provide a recommendation to get started.

Every investor has goals. For example, some parents simply want their kids to learn about investing in a safe environment. Other parents may really want their kids to begin to build a nest egg — with the hopes that investing young may help them pay for college, buy a house, or even retire early!

Then there’s timing — short-term and long-term. Are your kids investing over the next 3-5 years or are they looking to invest for much longer, like 20 or 30 years? This determines what kind of investments are the best options for your kids.

What is risk?

Risk is one of the hardest investing fundamentals for kids to understand. Up until this point, they probably thought risk was bad! In the world of investing, risk has a different meaning. So let’s get comfortable with it.

High risk means that there may be more ups and downs. In other words, there’s a greater chance you could lose money with your investment. BUT, there’s also a greater chance you could make a higher return on your investment.

Low risk is the opposite. There’s less of a chance you could lose money, but there’s also less chance you’ll make a high return on your investment. We usually think of low risk as a more safe and stable investment — and because of this, it’s usually recommended for the short-term.

Risk can be scary, but luckily, your kids are learning at a young age in a safe environment. They can use their Greenlight app to learn the ropes without getting stuck in an investing pickle.

What about diversification?

Investing in only one company can be risky. If that company has a tough year, you could lose some of your money. But if you’re invested in another company that does well, it can even out.

Diversification means investing in different things so that your money is spread out over many investments. It lowers risk and can keep your money safer.

How should we invest?

It takes time to learn the ropes of investing. That’s why it’s so important to research companies and explore options before diving in. Morningstar is an investing research tool trusted and loved by many — and it’s right in the Greenlight app. 

Kids can review Morningstar ratings and analysis to help them decide which stocks or ETFs would make a good investment.

The benefit of long-term investing

Historically, investing in the stock market has made money over time. For years and decades, the stock market has gone up. But it’s not a straight line. Stock prices move up and down all the time. If the price of a stock or ETF you own is higher than the price you paid, you’ll see a gain for that investment. If the price is lower than the price you paid, you’ll see a loss.

Investing for the long term helps outlast the volatility of individual stocks or the stock market in the short term. Volatility describes how widely a stock’s price fluctuates over a period of time. A certain amount of fluctuation is normal.

Knowing about these changes can help you be more comfortable with them. Remember, investing in the stock market is all about the long term. And patience actually pays.