Everyone agrees on one thing when it comes to investing: they wish they had begun earlier. Starting to save and investing at a young age is better to comprehend fairly complex concepts like market fluctuations and profit reports, which are concepts that many adults also find difficult to grasp.
Making a custodial account for teenagers is one of the options to teach them how to start investing while they are young.
Custodial accounts for teens
Kids and teenagers under the age of 18 can get a custodial account, a sort of investment account. the parent or other relative handles this account, which enables them to trade a variety of investments that are advantageous to the child, such as stocks and ETFs. The ownership of the account is then transferred to the young when they reach legal adulthood.
For parents looking to save for college or other expenses that can benefit their kids, several investment banks and conventional banks offer custodial accounts. Institutions that offer these accounts often create educational content as well, which can help investors learn more about the world of finance.
Involving teens in their investments
Teens can learn how to manage a portfolio at a young age by being involved in the administration of their custodial accounts. Although this account is officially run by parents or guardians, giving young investors some control over their investment portfolio can spark an interest in finance and provide them with priceless experience in handling their funds.
Young investors can also benefit from custodial accounts by learning the fundamentals of economics and finance. For example, discussing investment techniques and the S&P 500 with your kids might boost their self-esteem and sense of responsibility.
One of the positive aspects of starting early is the money growth that the portfolio might experience over time, due to compound interest.
Rules for custodial accounts (UGMA/UTMA)
These accounts has restrictions set by the bank, but there are some general rules that you must take into account:
Custody accounts for kids only
All funds in the account belong to the children from the moment the account is created, until they reach the age of majority, which ranges between 18 and 21 years, and take control.
The funds must benefit the kid
The money in the custodian account is for the children’s needs only, and the guardians cannot use it for their personal needs.
Beneficiaries can use the money as they see
After teaching your children the basic concepts about saving and investing, they will be able to use the money as they wish once they take over.
Learning about investing can teach your kid important lessons about money and personal finance while helping him avoid some mistakes. Financial education allows your child to become familiar with his money and know when and how to successfully approach long-term financial goals.
Invest for your kid’s future and let them begin their success journey with the custody account!.