Fidelity Investments is expanding its no-fee investing accounts to a new group: teens.
With parental permission and guidance, of course.
The investing firm Tuesday announced the Fidelity Youth Account, a brokerage account specifically designed to help kids ages 13 to 17 invest, save and spend. The accounts are available to teens whose parents or guardians have Fidelity accounts and allow young people to save, as well as buy and sell U.S.-listed stocks, most exchange-traded funds and Fidelity mutual funds.
The account comes with a debit card and allows teens to trade with no account fees or commissions. Parents are able to monitor activity, which Fidelity says will help boost conversations about personal finance and investing with their children.
"Our goal for the Fidelity Youth Account is to encourage young Americans to learn through action and foster meaningful family conversations around financial topics," said Jennifer Samalis, senior vice president of acquisition and loyalty at Fidelity Investments, in a statement. When the teen turns 18, the account will transition to a standard brokerage account.
The pros of having this account
But few investing firms cater to children — even Robinhood, the popular online trading platform, requires users to be 18 or older.
"Anything that spurs a conversation about personal finance in your house is great," said certified financial planner Tom Henske, a financial advisor with Fifth Avenue Financial in New York. "Anything that inspires your kids to talk about it or be interested in it only bodes well for the long term."
Using an account like Fidelity's can be a great opportunity to teach your child how to build financial good habits and gives them some experience in doing so. The Fidelity account gives kids more independence than other custodial accounts, which is also positive, according to Yanely Espinal, director of educational outreach at Next Gen Personal Finance.
"It's so exciting as a teenager to have that agency and access to your account," said Espinal. She added that it's positive that the Fidelity account has zero fees and no minimum balance, as so many young people don't realize those penalties can eat into savings.
"You end up learning the hard way," she said of other accounts.
This experience to practice saving, spending and investing in a monitored environment with more guardrails is something that is often missing in personal finance education — if teens get any at all.
"We've been trying to teach [kids] about money without money," said Henske.
Getting started early with solid personal finance habits and learning about investing — including the jargon — will help kids in the long run.
"The reason you invest is because you're trying to beat inflation and you're doing that by using compound interest," said Henske, adding that these are "two of the most important things for kids to learn."
The cons of letting your kid invest
Of course, there are possible downsides to letting your children trade in the stock market. While exposure to risk assets can grow wealth over time, it also opens investors to the possibility of losses.
Henske's one fear is that Fidelity's platform will lead to more young investors focusing 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, things like that."
"So why are we spending so much time trying to teach kids how to buy and sell an individual stock when they're never going to be using that in the future?"
His fear is that losses could take a psychological toll on kids and turn them off from investing.
To be sure, there are some limits to help shield children from outsized losses. There is a $30,000 account cap, according to Fidelity. In addition, teens will not be able to trade options or on margin, popular tools on other platforms that amp up risk. And, teens can also trade ETFs and mutual funds through Fidelity, as well as stocks.
"I'm glad that they're not allowing stock options," said Espinal, adding that it can be dangerous and should only be available to more advanced investors.
Even if teens do get caught up in stock picking, it may be better for them to make some financial mistakes early and in this kind of account, according to Henske.
For one, the stakes will likely be much lower. "Better to make a mistake with $250 than $250,000," he said.
Mistakes also give parents an opportunity to discuss money with their teens and share their own mistakes.
"I think it helps to be vulnerable and to say I made the same mistake," said Henske. "We've all made financial mistakes."
Of course, the Fidelity account is very specific. For children younger than 13, a general savings account is probably the best option, said Henske. And, if you have a teen who has earned income, through a job or self-employment, a custodial Roth investment retirement account would be the first choice, as it helps the child think about investing over the long term.
But, for a teen who doesn't have earned income and wants to invest, an account like Fidelity's may be the right fit.
Investing with your teen
Using an account like Fidelity's can be a good way to foster a dialogue about money with your teen and even learn about finances together.
Even though Fidelity's youth account will offer some educational information on saving, investing and spending, using the product is not outsourcing parenting, according to Henske.
"You've got 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 crucial to their development.
Parents with teens who have investing accounts should check in often just to hear how they're doing and what decisions they're making, said Henske. He also suggested that parents co-invest with their teens by giving them a little money to get started.
"It gives you the permission slip as an owner to say, 'What's going on?'" he said.
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