Investing for Teens: A Parent's Guide

Try this with your teen this week

1. Put in their real numbers: their age and what they could set aside each month from a job, gifts or allowance, even $10.
2. Read the three rows out loud together and ask which one they would pick, and why.
3. Decide where their first investing money will come from, and how much of each paycheck or birthday gift goes in.

Say this: "Every dollar you invest now gets more years to grow than any dollar you invest later. Money you put in at 15 has 50 years to work before you turn 65. Money you put in at 25 only gets 40."

Estimates only. The comparison compounds monthly at one flat rate. Real returns change every year, and actual results depend on your situation, the market and taxes.

What starting at 15 is worth

Every row below assumes $50 a month and a 7% average yearly return, which is roughly what the stock market has done after inflation over the long run (see the sources at the end). The only thing that changes is the age your teen starts.

Read across the 15 row. Stopping at 25 means putting in $6,000 in total, and that money alone ends at $141,163. Someone who starts at 25 puts in $24,000 over 40 years and ends at $131,241. The early starter saved a quarter as much and still came out ahead.

The head start pays off most when money grows faster. Switch the tool to 2% and the stop-at-25 plan falls behind, because growth that slow needs deposits more than it needs time. To see how any amount grows year by year, use the compound interest calculator, or check the Rule of 72 for how fast money doubles.

How to teach teenagers about investing

Teens are already curious. In Schwab's 2026 Teen Investing Survey, 70% of teens said they were very or extremely interested in investing. That survey only included teens who were at least somewhat interested and parents with at least $50,000 to invest, so read it as a picture of engaged families. Here is how we would approach it:

1. Start with money they already have

Ask where their investing money would come from. In the same survey, 53% of teens said a job, 46% said gifts and 37% said an allowance. Pick one source and start small. $10 a month is enough to learn how it works. Just had a bar or bat mitzvah? Our bar mitzvah money planner splits the gifts into give, save, invest and spend, and shows what the invest share could grow to.

2. Explain funds before single stocks

Half of the teens surveyed said stocks were the investment they knew most about. Only 25% said the same about mutual funds and ETFs. So start with the fund: one purchase that tracks a whole market index instead of betting on one company.

3. Run the numbers together

Put your teen's own age and amount into the comparison above and let them move the slider. At the default settings, $6,000 put in early beats $24,000 put in later. A teen who sees that for themselves does not need the lecture.

4. Open the account together, then step back

Teens want you involved, just not in charge. Schwab found that 27% of teens wanted their parents heavily involved in their investing and 60% wanted them somewhat involved, but for the actual decisions 64% wanted parents to have only a little control. Parents lean the same way: the most wanted to be heavily involved in setting up the account and reviewing its taxes (57% each), and the fewest in selecting the investments (44%). A split that fits both: you handle the account and the paperwork, your teen chooses between two or three funds you have read about together and decides how much of each paycheck goes in.

5. Plan for the first bad year before it comes

The top worry teens named was losing money on a bad investment (59%), and 41% worried about getting stressed over how their investments perform. Talk about a down year before they live through one. Agree in advance on what you will both do if the balance drops by a fifth, so the first red number turns into a lesson instead of a panic.

Accounts a teen can use

Most teen investing runs through an account an adult opens. Here are the two common ones.

Custodial account (UTMA or UGMA)

Any adult can open one and invest on a minor's behalf. The money belongs to your teen from the day it goes in. The custodian manages and invests it until the age of majority, which varies by state, and then has to hand it over. Until then it must be used for your teen's benefit; after that, your teen can use it for anything.

Taxes: if your teen's interest, dividends and other unearned income top $2,700 in a year, the IRS kiddie tax rules can apply. For how a custodial account compares with a 529 plan on taxes and financial aid, see our 529 plan vs custodial account comparison.

Custodial Roth IRA (for teens with a job)

A Roth IRA needs taxable compensation, which for most teens means pay from a job. There is no minimum age. For 2026, the limit is $7,500 or the teen's taxable compensation for the year, whichever is less. A teen who earns $2,000 at a summer job can put in up to $2,000.

Money can come out at any time, but a withdrawal that is not a qualified distribution can be partly taxable, and before age 59 and a half there may be an extra 10% tax unless an exception applies. Our custodial Roth IRA guide covers who qualifies and how to open one.

Index funds and diversification, in plain English

An index fund is a mutual fund or ETF that tries to track a market index, such as the S&P 500. You cannot buy an index itself, but a fund that tracks one gets you close. Index funds are usually passively managed, which means less trading, and that often keeps costs down. Often, not always: the SEC's Investor.gov notes that not all index funds cost less than actively managed funds, so check the fees before you buy.

Diversification is why funds suit beginners. The SEC's lesson for students puts it simply: with one investment that goes down, you lose money, but with ten different investments and one goes down, you could still come out ahead. A fund that holds hundreds of companies builds that in from the first dollar. It does not remove risk. A fund still falls when the whole market falls.

One line a 14-year-old can repeat back: "Picking one stock means betting on one company. An index fund means owning a small piece of the whole market."

Risk: what a bad year looks like

Stocks go down, sometimes a lot. In NYU Stern's S&P 500 data, the index lost money in 26 of the 98 years from 1928 to 2025. $1,000 invested at the start of 2008 was worth about $635 by the end of that year, a 36.55% drop with dividends counted, and it took until the end of 2012 to climb back above $1,000. The 2022 drop was milder: down 18.04%, and back above the starting point by the end of 2023.

Over the full 98 years, the index still compounded at about 10% a year, or roughly 7% after inflation. That is the trade a teen needs to understand: the long-run average only shows up for people who stay invested through the bad years. Most teens already lean that way. In Schwab's survey, 60% preferred investments that can make money over time and are less likely to lose money quickly, against 18% who wanted money that can grow fast and vanish just as fast.

How to talk about money with a teen

Teens listen to parents on this more than you might expect. In Schwab's survey, 56% of teens said they would trust their parents to give them investing advice, 42% first learned about investing from their parents, and 53% saw investing as a way to bond with them. It is still hard: 62% of parents said investing is harder to teach than driving.

Ages 13 to 15: make it concrete

Use their numbers, not yours. "You got $100 for your birthday. If you invest it at 14 and leave it alone at 7% a year, it could be worth about $3,515 by the time you are 65." Then show them a real fund page and point at three things: what the fund tracks, what it costs each year, and how much it fell in its worst year.

Ages 16 and 17: hand over the decisions

This is the age of first paychecks, so tie the two together. Before the money gets spent, ask: "How much of this goes in the account?" and let them set the percentage. If they have a job, put their pay stub next to the Roth IRA rule: they can put in up to what they earned, capped at $7,500 for 2026. Our first paycheck guide for teens shows what a first paycheck looks like after taxes.

Questions that start the conversation

• "If you had $1,000 you could not touch until you were 25, what would you do with it?"
• "Would you rather own one company you love or a small piece of 500 companies? Why?"
• "Your account just dropped 20%. What do you do next?"
• "What is one thing you want at 25, and one thing you want at 65?"

Where Penny Time fits

Penny Time is a free kids' money app built for ages 8 to 14, so it fits a younger teen, or a younger sibling, best. You set a recurring allowance and a growth budget. Then, on their own phone or tablet, your child gets quests: short stories where a fictional kid pitches a small venture, like a lemonade stand or a 3D-printing service, and your child decides whether to back it with part of their own balance. No money goes to a real business.

Each quest shows the investment, a risk level and how long the money is locked. The original investment always comes back, and only the reward, paid from the growth budget you set, is at stake. It can be zero. Every story arc also hides one too-good-to-be-true deal that pays almost nothing, so kids practise spotting a bad pitch. It is designed to teach risk and patience before your teen meets a real market. There is no card, and the app never moves money electronically.

No phone or tablet for them yet? You can still manage their allowance and cash-outs from your own phone, and connect a device later.

Where these numbers come from

• Charles Schwab: Schwab Teen Investing Survey (April 2026). Online survey by Logica Research, October 13 to 27, 2025: 1,000 teens aged 13 to 17 who were at least somewhat interested in investing, and 1,000 parents of teens with at least $50,000 in investable assets.
• IRS: Retirement topics, IRA contribution limits (2026 limit and no age limit)
• IRS: Traditional and Roth IRAs (withdrawals)
• IRS: Topic no. 553, Tax on a child's investment and other unearned income (kiddie tax)
• FINRA: Ways to Invest for Children
• FINRA: UTMA and UGMA accounts (who owns the money, handover at the age of majority)
• SEC Investor.gov: Index Funds
• SEC Investor.gov: What is diversification?
• NYU Stern (Aswath Damodaran): Historical returns on stocks, bonds and bills, 1928 to 2025
• Federal Reserve Bank of Minneapolis: Consumer Price Index since 1913 (used for the after-inflation figure)

This is general information, not personalized investment advice. Investment results are not guaranteed. Consult a licensed financial advisor before opening an account or making investment decisions. Tax rules change, so check with a tax professional or the IRS before relying on any of this for your situation.