Searching for stocks for kids to invest in but wondering where to start? Here are some tips to help. Read on to find out how kids can invest in stocks, the best stocks to buy, and what investing in the stock market can teach children.
Can kids invest in stocks?
Kids can invest in stocks, but they’ll need the help of a parent or guardian. Technically, minors can’t legally invest in the market – that includes teenagers under 18. Parents can invest on their children’s behalf, however, through a joint brokerage or custodial account.
What can investing in stocks teach your kids?
Investing in stocks can teach your kids valuable life skills that’ll serve them well as adults.
“Teaching your kids about stocks and the stock market helps them understand how the economy works. They’ll begin to see how the markets are interconnected,” says Beth Zemble, VP of Education at GoHenry. “Understanding that people can own shares – small pieces of a company – can help kids appreciate that investing doesn’t have to be mysterious and inaccessible. It’s something regular people can do.”
“Teaching kids about investing also opens them up to important ideas like saving money, maximising their returns and the power of compounding interest”, Beth continues. “People who start investing young have more time to grow their returns and recover from losses. So learning about stocks is a great way to help kids understand lessons that will set them up for a more financially stable future.”
Teach kids money management
As research shows, money habits are set in children by the age of seven. The earlier kids start learning effective money management skills, the better. Along with budgeting, saving and setting goals, investing is a key skill. It’s a tool like no other you can use to make your money work for you once you understand how to use it.
Teaching the basics of stock investment to your kids will help them understand how you can own a piece of a company, how businesses work and how to grow money. It’ll give them a grounding that can help them make intelligent investment decisions as adults.
Learn financial literacy
The financial industry is filled with jargon that even adults can find anxiety-inducing. It can put them off investing. Talking about the stock market with your kids will get them used to the terms, so they feel natural.
And as financial literacy is a hands-on skill best learned by doing, your kids will have the confidence to act on their knowledge. What’s more, trading stocks is a way for your kids to see how the maths taught at school – decimals, percentages, multiplication, addition and subtraction – is useful in life.
Understand the possibilities of long-term investing
Let’s face it, children have a valuable asset adults don’t – time, lots of it. Buying stocks for kids is a great way to show them how a small investment can grow over time. It’ll help teach them patience and the importance of goal-setting too.
And the earlier your child starts, the more time there is to earn compound interest.
Say, for example, your child invests £500 a year with an average return of 8%. By the time they reach 18, that investment will have grown to £18,725.12 – around £10,000 of that in earnings alone. Without contributing another cent after they turn 18, at 33, that investment could have grown to about £60,000. Left untouched till the age of 62, it could have ballooned to half a million pounds.
How can kids invest in stocks?
To start investing in stocks, your child will need a custodial account. There are several kinds. Here’s how to decide which one’s best for your child.
Parents can invest in the stock market on their child's behalf before they turn 18 via a Stocks and Shares Junior ISA with GoHenry. You can deposit up to £9,000 a year through monthly contributions or one-off payments – without paying any tax on the interest or returns on your investment. A stocks and shares Junior ISA means that the money you add will be invested in stocks, shares, bonds and other assets. Any returns on the investment are tax-free up to the annual limit, and although the value of your investment could go up as well as down, the potential for growth is higher. GoHenry Junior ISA investments are managed by Vanguard and are FSCS-protected up to the value of £85,000.
Child Trust Fund
Child Trust Funds were a long-term tax-free savings account for children born between 1 September 2002 and 2 January 2011. The scheme closed in 2011 and was replaced by the Junior ISA instead. Existing child trust funds are professionally managed funds that invest in a portfolio of UK and international company shares, government and corporate bonds, and cash. No more than 60% of the portfolio is invested in stocks and shares.
You can continue to add up to £9,000 a year to an existing Child Trust Fund account. The money belongs to the child, and they can only take it out when they’re 18. They can take control of the account when they’re 16.
A child pension is a savings scheme set up on behalf of a child under 18 by a parent that anyone can pay into. It is a way to save for your child's retirement and has many features of adult pensions, including tax relief from the Government. Investment returns are also shielded from capital gains tax and income tax. However, your child won’t be able to access their nest egg until they retire in their sixties.
What are the best types of stocks to buy?
If you want your child to be a willing learner, pick a company that interests them to buy stocks in and talk to them about what you are doing and why. Disney, for example, or Mattel. Or suggest companies with brand names they’ll know, like Netflix, Google or Apple.
“Kids who want to be Cinderella or Black Panther can understand there are companies like Disney or Marvel behind their heroes. You can trigger their interest in following the adventures of those companies on the stock market,” says Beth Zemble, GoHenry’s VP of Education. “Instead of thinking solely like consumers, kids who are invested in a company might begin to think like owners and care how the company is doing. This can be an empowering change of mindset.”
Walk your child through evaluating the stock. Talk about the company’s history and discuss its future rather than focusing on current successes or failures. Here are 12 kid-friendly stocks to consider.*
Also, use this opportunity to talk to kids about the FTSE 100 and the London Stock Exchange and how it works.
12 kid-friendly stocks
Which is more rewarding in the long term? A Happy Meal prize or a share of the company? McDonald’s earns revenue from rent, royalties and sales in its restaurants and drive-thrus. And with over 1270 of them in the UK, your kids will see their company in action pretty much everywhere they go.
Walt Disney is a name most kids know and love. The firm makes its money from its family movies, TV shows, theme parks and related toys and clothing products. Disney’s been around for nearly 100 years, making it a well-established company.
Who hasn’t heard of Apple? It’s one of the most innovative and largest tech companies in the world. Apple’s income is from designing and selling phones, computers, laptops, tablets and accessories.
Having started its streaming service in 2007, Netflix now has over 220 million subscribers globally. The company makes its money from subscription fees as well as ads. It now has its own productions as well as distributing films and TV series.
Alphabet owns Google and YouTube, two of the biggest internet search engines. And who can imagine a life without either of those now?
Recently rebranded as Meta, Facebook still dominates the social media industry. If your kids love Instagram, they might want to snap up shares in Meta.
7. JD Sports
Every teen’s favourite shop - from trainers to tracksuits, accessories and more your child can own a piece of it.
How about stocks in trainers for your budding sports fanatics? Nike is among the most innovative and best-known names for sportswear, equipment and trainers.
Top Gear fans might be interested in Tesla shares. If you don't have enough to buy an entire share of Tesla? You may be able to purchase a fractional share – essentially a piece of a share. Several brokers now offer fractional shares of individual stocks.
Best known for Barbie and Hot Wheels, Mattel is the second biggest toy manufacturer in the world. As well as their own brand, the firm makes money manufacturing toys for partner brands.
Are your children video game enthusiasts or Pokemon collectors? Nintendo stock might appeal. The company makes its money from video game consoles and trading cards.
With over 400 million active users already and another 50 million predicted in 2023, Spotify is loved the world over. Your kids may already use it so they’ll understand its appeal. The company makes money from subscriptions and ad sales on its streaming service.
How can GoHenry help teach your kids about investing?
At GoHenry we have just the tool to help teach your kids about investing. Our prepaid debit card for kids aged 6-18 comes with Money Missions. Available in our app, these include fun, bite-sized quizzes and interactive games to teach your child what investing is all about. They’ll be introduced to the concept of stocks and shares and learn how the stock market works.
The information provided in this article is not intended to be investment advice – nor does it claim to be comprehensive. Speak to a professional if you’re unsure about whether investing is right for you. We do not endorse any third parties referenced.