If you read my article earlier this year about the so-called “game trading” program, you will already know that I am not a fan of brokerage firms that encourage people to invest like gaming.
However, I really believe that it is beneficial for young people to gain investment experience during their formative years. This knowledge will enable them to understand the importance of managing their money responsibly.
Until recently, children under the age of 18 could only make online investments through a parent or guardian brokerage broker account. Theoretically, a child with access to an account can invest in everything an adult can do, including foreign stocks, currencies, leverage, ETFs, and junk bonds. If the foster parent does not pay attention, the child can quickly get both of them in trouble.
Giving teens unrestricted access to online shopping is a recipe for disaster. That’s why I was interested in Fidelity Investments’ decision to set up a special discount brokerage platform for teenagers. This free account, called Fidelity Youth Account, allows 13- to 17-year-olds to invest and buy online banking.
Now, I am not legally allowed to set up any trading platform. Even if I were, I would never point a finger at a program I have not tried on my own. It’s been decades since I was a teenager, so I won’t be able to hit Fidelity tires anytime soon. So after reading the description of Fidelity Youth Account, the most I can say is that I hope it uses its potential to teach teens how to invest, save, and spend responsibly.
Some Pulse Controllers are Built-in
On paper I will say that I am inspired by the level of control և parental control. Loyalty requirements will not allow teens to act like amateur hedge fund traders or indulge The Wolf of Wall Street-style manipulation.
First of all, teenagers can not open an account on their own. For those who will have to open it for themselves և they can only do so if they have their own Fidelity brokerage account. The youth account can be funded by a parent broker account or a teenager’s bank account (or joint bank account). There are no minimum balance requirements or account maintenance or trading fees.
The account has a debit card, which, according to Fidelity, will have daily spending restrictions. And children can transfer money in and out using PayPal, Venmo և other programs. The app will not give parents tools to monitor what their teens are spending or investing in, but they will be notified of those actions. I certainly hope they will look into them in more detail, because if ior unior uses the account to commit illegal or fraudulent acts, mom and dad will be held accountable. Fortunately, mom and dad can also close the account completely if ior unior betrays their trust.
To prevent children from getting on Reddit-style flying cars, Fidelity says it will not allow children to buy or sell options, penny stocks, foreign stocks or individual bonds or cryptocurrencies. They may not open margin accounts, sell short or invest in annuities, structural products or other complex securities.
But I still have serious reservations
This all sounds good:. But there are some things about this app that I’m worried about. I understand that Fidelity does not offer this platform out of kindness. The company wants to start building loyalty to its discount brokerage platform as soon as possible. That’s why, according to Fidelity, when a teenager turns 18, the Youth Account automatically becomes a regular Fidelity Broker, account, բոլոր all parental controls cease. Does turning 18 suddenly make you a smarter, more responsible investor? My adult children may say yes, but I would say it is debatable.
I do not like the fact that Fidelity only allows teenagers to invest in their own mutual funds. This limits the ability of other fund families to evaluate միջոց investments, which may have better records or lower costs.
Any other concerns? Because these are taxable accounts, teens may not be aware of the usual taxes on their income և capital gains that may result in their transactions. Given that teens generally do not earn a lot of money, their tax bill is unlikely to increase much, but that profit may require them to file their own tax returns, otherwise they will not have to. In some cases, parents can report their teenager’s earnings based on their own tax returns.
I’m also a little worried that Fidelity does not limit the amount that can be credited to Youth Accounts, although they recommend limiting it to $ 30,000 per year. I wish the margins were much lower, as there are no controls that will allow kids to keep track of all their savings trying to pay in the style of the next GameStop. Some commentators say that the best way for teens to know the consequences of making bad investment decisions is to burn them. But I do not think the lesson plan in these “difficult schools” is the best approach.
But I think what worries me most about these accounts is that teens can start doing business without the compulsory education needed to avoid making impulsive or ill-informed decisions. Loyalty offers a lot of educational content, but at first glance it seems that they put their responsibilities on the parents to make sure that their children will go through it first.
What about Student Learning to make Youth Accounts more secure?
I do not like this approach. After all, we do not allow teens to get behind the wheel of a car until they have passed a student permission test. And we do not allow them to take the family SUV out on their own until they have issued their driver’s license. However, Fidelity seems to be fine with the idea that a financially uneducated 13-year-old could lose all his savings by making bad commercial decisions.
That is why I would like Fidelity and other companies planning to launch similar youth brokerage accounts to have “financial learner permission”.
Ideally, any teenager who wanted to open such an account would first have to take a number of industry-approved online courses that would cover the basics of investing and personal financing. They would then be tested at the end of each module. After passing all the tests, they will be able to finance their account և start trading. Of course, they could still lose their shirts, but at least they could not use their financial ignorance as an excuse.
I’m not aware that this qualification process will take place any time soon, so the best I can say about the Fidelity app is that it can be a safer alternative to gaming commercials that I do not like.
However, if your teen is interested in investing online, consider your own investment qualification requirements before opening any type of brokerage account on their behalf. Give them access to educational content available through your online broker or 401 (k) plan և Test them to make sure they understand. Or, consider having your child talk to your financial advisor, who can recommend additional sources of educational information և explain the investment rules of the road.
Financial Advisor, Partner, Canby Financial Advisors
Chris Gullotti, CFP® is a financial advisor and partner at Canby Financial Advisors in Framingham, Massachusetts. He holds a master’s degree in financial planning from Bentley College.Securities և consulting services offered through Commonwealth Financial Network®, a member of FINRA / SIPC, a registered investment consultant. The financial planning services offered by Canby Financial Advisors are separate and non-affiliated.