How I got into investing: Fidelity youth account
Thanks to the Fidelity Investments youth account, I started investing on my own a little over a year ago. The Fidelity youth account is available from the age of 13 to 17, and following that the account transitions into a traditional Fidelity brokerage account. Traditionally, underage people have to invest through their parents. Not only is this tedious for the parents, but it also doesn’t allow the teenager to have a solid grasp of what is happening to their investments. Although there are some other options, such as opening a custodial account, I would highly recommend the Fidelity youth account for a couple of reasons.
The first and possibly largest difference from a custodial account is that you own your Fidelity youth account. Parents have certain abilities within the account, but the account is owned by the teenager. While this can either be seen as a positive or negative, it means that your teenager will be the one making investment decisions within the account and not the parent. The things that a parent can do within the account include:
Initiate and approve opening the account.
Retain the ability to close the account and/or cancel the debit card at any time.
Be an Interested Party with "inquiry access," meaning you'll be able to review debit card statements and trade confirmations. All account transactions will be viewable online as they occur.
Be designated as the "trusted contact" and serve as a point of contact for Fidelity.
Notably missing on this list is the parent cannot approve trade made by the account. This means that for the parent you are mostly a bystander on the account, and in most cases cannot directly influence it, other than through your teenager. Because of this, I would heavily recommend reaching an agreement with your teenager on how they are going to use the account since the youth account is a much greater responsibility than most other investment options for minors.
Other than the investment account, the Fidelity youth account also comes with a free debit card. This card is directly linked to the account and grants access to ATMs, with no fees on domestic ATMs. This can help to teach important lessons about money management to your teenager, and also will reduce the hassle of setting up a debit card for your teenager if they want one.
What can and can’t my teenager trade?
The Fidelity youth account allows the trading of certain securities that are publicly traded in the United States. Included in this are:
Most exchange-listed NMS securities, including shares issued by public companies listed on an exchange for purchase by the public.
Shares of Fidelity mutual funds
Your teenager cannot purchase third-party mutual funds, corporate bonds, municipal fixed income securities, certificates of deposit, and Treasuries. Also, some types of NMS securities can't be traded with the youth account. These include shares of real estate investment trusts, convertibles, and leveraged and inverse exchange-traded funds. Options, margin trading, and after-hours trading are also not allowed. Other exclusions include:
FILI insurance products
Shorting stocks
Penny stocks
International stocks
Foreign currencies
Participating in a company's IPO
Because the idea of youth accounts is relatively new, the Fidelity youth account is rather restrictive of what can and cannot be traded to prevent an inexperienced teenager from trading anything too risky. One good thing that comes out of this mindset is the introduction of fractional trading, where you can purchase a small amount of stock for a significantly smaller investment. However, whether your teenager gains or loses on their investments, it is much better for them to lose hundreds now rather than substantially more later in life. This allows the trading of stocks like the Berkshire Hathaway Class A, currently trading at over 400,000 USD, for as little as one dollar. Teenagers can also participate in proxy voting and other corporate actions on stocks that they invest in.
Overall, the Fidelity youth account is a fantastic introduction to investing and money management and begins instilling the idea early in life that money can not just be spent, it can also be saved or invested. Because of this, I highly recommend Fidelity’s youth account. Also, there is currently a limited-time offer going on where when you activate a youth account Fidelity will give a $50 bonus.