Macroeconomic indicators are unclear these days, but there is one bright spot on the horizon: Young investors learning long-term investment strategies are prioritizing index funds over individual stocks.
At least that’s what seems to be happening at Greenlight, a banking and investing app aimed at families, which has seen a specific broad-market index fund rise to the top spot among its young traders for 2023. This year, the Vanguard 500 Index Fund VOO dethroned last year’s top pick, Apple AAPL.
Rounding out the rest of the top 5 stock picks from the $20 million invested in the 549,000 trades on the Greenlight platform were Amazon AMZN,
Tesla TSLA,
and MicrosoftMSFT,
While still a work in progress, it shows that children are beginning to understand the importance of diversification. “It helps maintain balance,” says Tim Sheehan, CEO of Greenlight, which tracked user data to compile these year-end statistics.
Adults who plan to give children shares as a gift should also take this into account. The goal of investing at this age is not to create a new generation of paper billionaires, but to teach investing.
“What you hope to teach 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 discovered that there is a real connection between investing at a young age and investing in trust in adults. “I hope that these kids will gradually learn the truth about building long-term value. I hope this is part of the process.”
Greenlight’s young investors also saved a lot of money in cash – to the tune of about $197.5 million. And they spent quite a bit of it, averaging $118 per month. Although they reported long-term goals such as saving for a car, college and electronic equipment, they spent their daily money on more volatile consumables at places like McDonald’s MCD,
Sephora LVMUY,
and target TGT,
They spent a combined $21 million at Starbucks SBUX,
and $10.7 million playing Roblox RBLX,
They were also generous, giving away $5.5 million to charities like Etsy Uplift Fund, the International Spy Museum and the Bronx Zoo.
Where children can trade shares
Children under 18 cannot technically own stocks, but there are many platforms where they can do so under supervision. Many simply do this through custodial accounts at banks or brokers, or through a program like Fidelity’s Youth Account, which is aimed at children aged 13 to 17 and offers a bit more freedom. Platforms such as Greenlight, Stockpile and others, charge monthly fees for a range of services and educational features.
For example, Greenlight offers savings with rewards, debit and credit cards, an educational gaming platform called Level Up, in addition to investing. Cost levels start at $4.99 per month, but you must pay at least $9.99 per month to invest.
The platform doesn’t dive kids straight into trading, but first asks them the same basic questions about risk tolerance that a brokerage platform asks, and then helps them research and select investments that need to be approved by an adult. The average age for users is 12 years. “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 stimulate conversations between children and their parents. Good things will come from that.”
Greenlight is looking at 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 perspective because they allow working teens to start saving for retirement — and are typically shielded from financial aid calculations. For these accounts, the money comes in after tax, but many children are currently below the income threshold for paying taxes, and the money grows tax-free, with full access after age 59.5 (but always access to the contributions).
“It can be difficult to avoid a Roth IRA,” says Torabi, but she adds that mastering some of the basics of investing with one or two index funds can be a good start. “Maybe this is the gateway,” she says. “I’m optimistic.”