With the rise of trading apps, young people are beginning their investing journey significantly earlier than prior generations. Simple user interfaces and gamified features are an enticing and familiar onramp for digitally native generations. It’s a pretty different experience from the days of having to call a stockbroker to make a trade (and pay a commission!). And that’s a good thing!
The combination of more accessible tools, the media’s fawning over every dip and rally the stock market has to offer, and the frenzied rise of crypto has created a keen interest amongst people under the age of 18 to seek the opportunity to start investing now and reap the benefits of a longer period of compounding.
The good news: parents have the ability to open custodial accounts for their children. Their children own the assets, but the account is managed by the parent (a common custodial account is the UGMA — which is offered by EarlyBird through our app).
The bad news: unless you’re exclusively interested in stocks, bonds, and funds, finding a roundabout way to own crypto can be pretty tricky if you’re a kid, or a parent interested in buying crypto on behalf of your child.
Translation: if kids want to invest in crypto, an adult has to help them out.
We recently announced the waitlist for EarlyBird Crypto — the easiest way to open a crypto wallet for your child. This launch is happening through our partnership with Gemini, one of the world’s largest and most secure crypto exchanges. If you’d like to join the waitlist — which includes a $25 crypto sign-up bonus and an 8-part education email series — you can do so by heading over to getearlybird.io/crypto.
In a nutshell, parents will be able to open a crypto wallet for their child, set up recurring contributions, and accept gifts from friends and family directly into their wallet. It works a lot like our other account type (which allows parents to do all those things, but with stock and bond funds).
As an adult, when you head to a crypto exchange to convert some dollars into crypto, you'd create an account, provide some information, transfer funds, and boom - you're ready to buy crypto. But when it comes to children, this option is not available. In order to remain in compliance with KYC laws, all reputable exchanges in the United States require users to be at least 18 years old. (For the record, kids also can't buy their own stocks without the support of a parent).
“Know Your Customer” laws are SEC-enforced regulatory guardrails against fraud and money laundering. When you open an account with a bank, you have to give them your social security number. Same thing when you open an account with any legitimate crypto exchange (like Gemini and Coinbase). And same thing with EarlyBird... it’s just kinda the rules of the game.
Your first solution is to buy crypto (like Bitcoin or Ethereum) and then store it in a “cold wallet.” Before we go any further, here's a quick primer on wallets...
A crypto “wallet” is an interface with the blockchain. Wallets create addresses to which crypto can be sent, and secret keys, which enable YOU to send your crypto somewhere else. Wallets are either hot (i.e. always connected to the internet) or cold (i.e. only occasionally connected to the internet). Being “offline” makes cold wallets a bit less convenient than hot wallets, but the tradeoff is that they are more secure — basically impenetrable to web-based attacks. Cold wallets look like fancy USB sticks (it’s literally a piece of hardware). And get this: you can lose that device but as long as you remember your seed phrase, you’ll be able to recover your crypto.
And just to close the loop here... A "seed phrase" is a mnemonic device that is connected to your wallet. The seed phrase generates your private key which gives you the ability to send your crypto somewhere else AND is basically a “backup” if you ever lose your cold (or hot) wallet. The phrase itself is usually a combination of 12 (sometimes 24) words pulled from a pool of 2,048 words. How secure is a seed phrase? Well, if you do the math you’ll quickly realize that it’d take someone like 1000 years to guess your seed phrase. It’s a lot easier for them just to trick you into telling them. So the rule of thumb is: never tell anyone your seed phrase.
When your child turns 18, they can set up their own wallet, transfer the crypto you bought for them, and either cash out or continue to hold the crypto in the new wallet. This sort of transaction wouldn't be without it's tax consequences and it also requires that the child (or parent) take good care to keep track of the wallet's seed phrase -- otherwise there is a risk that the little piece of metal gets misplaced and the crypto is gone forever.
Fortunately, there's a simpler option that doesn't skimp on security, makes it easy to set up recurring investments, and simplifies the process of receiving financial gifts in crypto (from a birthday or baby shower, for example). Through our partnership with industry-leading crypto exchange Gemini we've made it easy for parents to invest in crypto -- currently limited to Bitcoin and Ethereum -- on behalf of their kids. Get signed up for EarlyBird Crypto today.
They wish they knew more and they’re wondering whether they should incorporate crypto into their child’s portfolio (or their own). We think it’s worth the addition (in moderation) for three reasons:
First, regarding Bitcoin and Ethereum’s performance, two things are true: (1) their prices are highly volatile (prices go up and down unexpectedly and in big swings); and (2) anyone who has held these assets for more than 3 years has made money. So if your child has more than a 3-year investing time horizon, crypto has a pretty good track record of rewarding patience and persistence.
Second, the future is uncertain, but it is clear that new economies and opportunities are emerging around the crypto space. We’re not saying definitively that this or that is going to happen, but there is a chance that crypto plays a much bigger role in the future. An investment in crypto is a bet that crypto and crypto-ecosystems don’t disappear (and so far, Bitcoin and Ethereum have been pretty darn resilient against hacks, regulation, and media criticism).
And last, when it comes to personal finance, education and exposure go hand in hand. Dipping a toe in is a great way to kickstart a learning journey. We’ve got a great intro series on crypto’s history, performance, technology, challenges, and culture for the folks who get signed up.