Send an EarlyBird gift in minutes
financial literacy

The Complete Guide for Child Investors

Find out everything you need to know about investing for children, including what the best investment account is and how you can best invest in their future.

Last updated:

April 15, 2022

EarlyBird helps parents, family, and friends collectively invest in a child’s financial future. Learn more.

What You'll Learn

They say it’s never too early to start investing, right? 

If you want the kids in your life to benefit from genuine financial freedom when they come of age, you’ve got a few options to help them.

If you choose the right investment vehicle, the children that matter most to you can become an investor, too. It’s just a matter of weighing the pros and cons of each investment opportunity and understanding the rules around child investors and what you can do to help save for a child.

This guide will explain everything you need to know about child investors, including whether a child can invest in stocks, what the best investment account for a child is, and how you can invest for a child’s future.


Can a Child Invest in Stocks?

The short answer is: no, children cannot directly invest in stocks. But the long answer isn’t quite that black and white, so just bear with us for a minute.

If you want to buy and sell stocks on the stock market, you’ll generally need to set up a brokerage account to do so. 

(Image Source)

Why is that important? 

It’s important because just about every brokerage firm in the sector imposes a universal requirement that you’ve got to be at least 18 years of age or older in order to open a brokerage account with the firm. 

That means a 16-year-old kid cannot simply march up to a stockbroker, set up an account, and start trading that same day. 

As a result, in most jurisdictions, a child isn’t allowed to invest in stocks — or, at least, they can’t invest in stocks the same way that an adult can.

But just because child investors can’t legally trade stocks doesn’t mean a child can’t still become a stock investor of sorts. You’ll just need to help them out to get started.

Investing in stocks for the kids that are important in your life is a fantastic way to teach them about finance and help them to get ready for the future.

What’s the biggest benefit of investing in stock for children? Time is on their side.

Generally speaking, stock market investments for children have really long horizons. 

That’s because the money invested on behalf of a child will be spending more time in the market. As a result, it’ll make a way bigger impact on their financial future thanks to the magical power of compounding.

Suppose you want to help teach your child, grandchild, niece, nephew, or any other important kid in your life to become a child investor. In that case, there are actually several dynamic investment vehicles you can set up that will enable them to invest in stocks indirectly.

Popular options that introduce children to stock investments include UGMA custodial accounts, 529 plans, and Roth IRAs. In fact, if you’re keen on a custodial account, EarlyBird can help you start investing in stocks for your child in a matter of minutes — but we’ll get to that shortly.

The key takeaway here should be that children under 18 can’t legally set up a brokerage account and buy stock shares. But there are investment vehicles out there designed to help you invest in stocks, ETAs, or securities alongside your child.

Teaching Your Child to Become an Investor

If the children in your life are interested in stocks — or you want to teach them why they should be interested in stocks — it’s important to start familiarizing them with the world of investment now.

Believe it or not, a large proportion of adults are totally mystified and intimidated by the stock market. It feels like a daunting and often unattainable world. 

By teaching children about stocks and investment from an early age, you’ll be able to wean them into the stock market world and gradually show them over time that it doesn’t have to be complicated or scary.

The best way to teach the children important to you about investment is to show them how it works first-hand. That’s where investment tools like custodial accounts really come in handy.

By setting up a custodial account for a child, you’ll be able to collect as many assets or securities as you’d like. Those assets can then compound over time. By the time your child reaches a certain age, you’ll be able to start demonstrating to them how those investments work.

You can show them what stocks or EFTs are in their custodial account and talk to them about how those stocks generate compound interest.

one type of portfolio you can select for the child investor in your life.

(Image Source)

Likewise, you can chat to them about the type of investor they’d like to become when they hit the age of majority, and those assets become their property. 

Ask them to consider the types of investments or assets that may be worth adding to their asset mix or whether there are any causes or companies that are important to them in which they’d like to purchase stock.

In terms of the logistics of teaching kids how to become investors, the best lesson you can start with is risk vs. reward. 

That means you should be able to show them what you’ve invested, how that’s a risk, and the ultimate reward they stand to gain by taking that risk.

Likewise, work to explain the differences between stocks and bonds, and profits and losses. 

By explaining these basic concepts to your budding child investor and walking them through the investments you’ve made on their behalf, it’ll enable them to better understand how interest accumulates, how to save, and how that savings can be reinvested to set them up for financial success in the future.

How do I Invest in My Child’s Future?

Unfortunately, child investors can’t purchase stock directly from the trading floor. You need to be 18-years-old to set up a brokerage account, so kids can’t buy stock until they’re no longer a minor.

But that doesn’t mean kids can’t become child investors — you’ve just got to help them invest. 

To help you explore those investment vehicles that let kids indirectly invest in stocks, we’ll walk you through three of the most popular investment vehicles out there: custodial accounts, 529 plans, and Roth IRAs.

Custodial accounts

An UGMA custodial account is a dynamic investment tool that lets parents, guardians, other family members, or even friends set up an investing account for a minor.

With a custodial account, the adult manages the investments within until the beneficiary reaches the “age of majority.” In most states, that age is 18.

With a custodial account, the assets you deposit can’t be taken back or given to somebody else. Those assets or investments are the property of the child — and because they’re the child’s property, the IRS also taxes them at the child’s rate.

So why choose a custodial account to invest in stocks for kids? 

Well, if you go for an intuitive platform like EarlyBird, a custodial account gives the child investor in your life the power of choice.

Earlybird offers users an option of five different ETF portfolios. 

These range from conservative to aggressive based on the child’s (or custodian’s) investment style and savings goals. EarlyBird also offers the ability to allocate up to 5% of a child’s account to value-based funds — which are organizations that are doing good for the planet or communities.

That could be really important to the children in your life as they turn from child investors to teen investors.

Finally, custodial accounts are great because anybody who wishes to add investments toward that child’s future can deposit money in the same portfolio. This makes sure the child’s investments are always diversified and growing.

529 plans

A 529 plan is a college savings plan that helps parents pay for their children's future college expenses. 

It allows children to indirectly invest in stocks, in the sense that various 529 plan providers offer limited investment portfolios.

But it’s also important to remember that 529 plans are specifically designed for educational expenses. That means the beneficiary is restricted on how they spend the money their parent, guardian, or loved one has saved.

At the end of the day, a 529 plan is a fantastic option if you want to save for your child’s future education tax-free. 

Just remember that, unlike custodial accounts, 529 plans can only be used for certain expenses — so if your child decides not to go to college, they’ll face fees and penalties when trying to access the money.

custodial accounts offer much greater flexibility than 529 plans

(Image Source)

Likewise, 529 plans also have contribution limits. So, if you’re after flexibility and want to give a kid the freedom to use their money however they want, a 529 plan might not be as good an option as a custodial account.

Roth IRA

Child investors and the adults in their lives may also want to consider a Roth IRA.

A Roth IRA is a tax-beneficial account that lets you store long-term savings. All contributions are after-tax, so any contributions you take out are tax-free.

Roth IRAs allow you to pay no taxes on withdrawals since you invest after-tax money

(Image Source)

You can use a Roth IRA to hold investments like company stock, bonds, or ETFs. 

But the biggest con of going with a Roth IRA is that it’s hard to make withdrawals before that child hits retirement age. In most cases, taking money out early will mean fines and fees. 

There are also usually super-low contribution limits. In 2020, the IRS imposed a Roth IRA contribution limit of just $6,000 per year (or $7,000 per year if you’re over 50) or total earned income for the year — whichever is lower. 

As you can imagine, this is a big hurdle for most child investors. A 5-year-old isn’t making $6,000 a year. 

But, if you have a 16-year-old with a part-time job in your life, a Roth IRA might be an option for them. 

What is the Best Investment Account for a Child?

If you want a flexible investment vehicle that’s efficient and enables you to teach your child investor about stocks in a safe environment, a Uniform Gifts for Minors Act (UGMA) investment account is definitely your best option.

With a UGMA custodial account, you’ll be able to invest alongside the kids in your life in a relatively unrestricted way. 

They’ll be able to learn about financial literacy, the stock market, saving, and interest with you safely at the helm. But you can also involve them in your investment decisions and let them get a taste of the driver’s seat.

Another major benefit of the custodial account is that there’s also no penalty for withdrawing funds early as long as those investments are used for the benefit of the minor. 

So, if the kid in your life heads off to college early or gets a once-in-a-lifetime opportunity to travel abroad, you can give them that opportunity, even if they’re not an adult yet.  

It’s worth pointing out there are plenty of custodial account providers out there. But if you want to maximize your child's investment potential and give them that financial freedom, EarlyBird's UGMA custodial account is a game-changer.

What makes EarlyBird stand out?

Above all else, EarlyBird is the sector’s first-ever custodial account that allows multiple donors to gift assets or investments to a child’s account. 

That means grandparents, siblings, neighbors, cousins, friends, or anybody else can contribute toward a budding child investor’s nest egg in just a few swipes.


If you want a child in your life to benefit from genuine financial freedom when they come of age, you’ve got to get them investing as soon as possible.

Unfortunately, kids under 18 can’t set up a brokerage account and purchase stocks directly. But that doesn’t mean you can’t help your budding child investor get excited about the stock market.

If you choose the right investment vehicle, your child can become an investor, too. It’s just a matter of weighing each investment opportunity’s pros and cons and understanding the rules around child investors and what you can do to help save for them.

So, are you ready to learn more about UGMA custodial accounts and how you can invest in a child’s future? Download the EarlyBird app today.


This page contains general information and does not contain financial advice. All investments involve risk. Any hypothetical performance shown is for illustrative purposes only. Actual investment performance may be different for many reasons, including, but not limited to, market fluctuations, time horizon, taxes, and fees. Please consult a qualified financial advisor and/or tax professional for investment guidance.


EarlyBird Team

Was this helpful

Download EarlyBird today and start investing in your child’s tomorrow.
Download EarlyBird today and start investing in your child’s tomorrow.
Download EarlyBird today and start investing in your child’s tomorrow.
Download EarlyBird today and start investing in your child’s tomorrow.
Download EarlyBird today and start investing in your child’s tomorrow.
Download EarlyBird today and start investing in your child’s tomorrow.