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Macroeconomic indicators are murky these days, but there’s one bright spot on the horizon: Young investors learning long-term investing strategies are putting index funds ahead of individual stocks.
At least, that’s what seems to be happening at Greenlight, a banking and investing app geared towards families, that has seen one particular broad-market index fund rise to the top spot for 2023 among its young traders. This year, the Vanguard 500 Index Fund
VOO
unseated last year’s top pick, Apple
AAPL,
Rounding out the rest of the top 5 stock picks of the $20 million invested over 549,000 trades on the Greenlight platform were Amazon
AMZN,
Tesla
TSLA,
and Microsoft
MSFT,
While it’s still a work in progress, it shows that kids are starting to understand the importance of diversification. “It helps maintain balance,” says Tim Sheehan, chief executive of Greenlight, which tracked user data to compile these end-of-year statistics.
Adults planning to give kids stock as gifts should also take note. The goal of investing at this age is not to create a new generation of paper billionaires, but to teach investing.
“What you’re hoping to instill in them is the basics,” says Farnoosh Torabi, host of the personal finance podcast So Money and author of the new book “A Healthy State of Panic.” Torabi has found that there’s a real correlation between investing at a young age and investing confidence in adults. “I hope along the way, these kids are getting the truth about building long-term worth. I hope that’s part of the process.”
Greenlight’s young investors also saved a great deal of money in cash — to the tune of some $197.5 million. And they spent quite a bit of it, with an average of $118 per month. While they reported long-term goals like saving for a car and college and electronic equipment, they spent their day-to-day money on more fleeting consumables at places like McDonald’s
MCD,
Sephora
LVMUY,
and Target
TGT,
They collectively spent $21 million at Starbucks
SBUX,
and $10.7 million playing Roblox
RBLX,
They were also generous and gave away $5.5 million to charities like Etsy Uplift Fund, the International Spy Museum and the Bronx Zoo.
Where kids can trade stocks
Children under 18 cannot technically own stocks, but there are many platforms available to them where they can do so under supervision. Many do this just through custodial accounts at banks or brokerages, or through a program like Fidelity’s Youth Account, which is geared toward kids 13-17, and offers a bit more freedom. Platforms like Greenlight, along with Stockpile and others, charge monthly fees for a range of services and educational features.
Greenlight, for example, offers savings with rewards, debit and credit cards, an educational gaming platform called Level Up, along with investing. Fee tiers start at $4.99 a month, but you need to pay at least $9.99 a month to invest.
The platform doesn’t let kids delve right into trading, but asks them first the same basic risk-tolerance questions that a brokerage platform asks, and then helps them to research and select investments to be approved by an adult. The median age for users is 12. “That’s where the magic happens, right there,” says Sheehan. “That conversation starts, and a parent can ask why you think you should invest in VOO or Apple. We set it up to encourage conversations between kids and their parents. Good things will come out of that.”
Greenlight is looking toward other ways to help kids invest, including adding 529 college savings plans and Roth IRAs for minors, both of which would help families minimize their taxes on investment gains. Roth IRAs offer a particularly long-term view, as they allow working teens to start saving for retirement – and are typically shielded from financial aid calculations. For these accounts, the money goes in after tax, but many kids are below the income threshold to owe taxes at that point, and the money grows tax-free, with full access after age 59 ½ (but always access to the contributions).
“A Roth IRA can be hard to wrap your head around,” says Torabi, but she adds that getting some of the basics of investing down with an index fund or two can be a good start. “Maybe this is the gateway in,” she says. “I’m optimistic.”
