Taking Stock in Teen Trading

Teen Trading

By Lori Schock, Director of the SEC’s Office of Investor Education and Advocacy

I’m a firm believer that it’s never too early to start thinking about saving and investing. Teens, your parents know this. Parents, if you haven’t told them yet, your teens need to know this. From teaching children to save money in their piggy banks to reminding teenagers to put some of that summer job money away, forming a saving and investing parent/teen partnership early on is a smart financial decision.

Taking Stock in Teen Trading

Learning about how the stock market works and understanding how to invest for your future is also a smart financial decision. The earlier you start, the more money you’re likely to have to meet your financial goals, like perhaps saving for college, buying a home, and retirement. Now teens, don’t check out on me just because some of these things seem like they’re a long way off. Believe it or not, planning for the future starts right now.

It’s important to understand that there are factors to consider when investing in the stock market. Teens these factors may be new to you. Parents this may be a refresher or may provide you with alternative ways on how to explain these concepts to your teenagers.

Investing 101

It’s important to educate yourself about the different kinds of investment products (stocks, bonds, mutual funds, etc.) and the benefits and risks involved with each. Know that a diversified investment portfolio with a mix of different kinds of products, can help spread the risk during the ups and downs of the market. When creating an investment plan, stick with it and plan for the long-term. Remember to set aside some funds for a rainy day. Be aware of online scams. If the investment opportunity sounds too good to be true, it probably is. For a deeper dive into investing basics, check out the tools and resources on Investor.gov and “Introduction to Investing.”

Teen Trading Accounts

Teen trading accounts are a relatively new concept. While I applaud the concept of giving teens a hands-on investing experience, you should understand what’s at stake. Before investing anything, go over the ground rules together. Discuss investing basics such as setting financial goals, the importance of researching every investment opportunity, understanding the different types of investment products and risks, and most importantly, the amount of parental involvement and supervison of the account. Every aspect can be used as a teaching tool.

Consider setting a dollar amount limit and make sure you don’t invest any more money than you’re willing to lose. Set realistic expectations. Start slow as the real goal is to educate, not become an overnight gazillionaire. Discuss investment options first, and then sit down together to make a trade. Consider setting up a system in which every trade is supervised and done jointly. While you may see the market go up and down, resist the temptation to try to time the market. It’s time in the market that counts, not timing the market. Talk about the fact that not every latest investment craze found on social media and touted by someone famous is the right investment opportunity for you.

Socially Acceptable?

Everyone loves a good meme so it shouldn’t surprise you that meme stocks are certainly attracting attention, especially with younger investors. A meme stock’s price may be based on internet popularity and social views, instead of a traditional stock value, such as a company’s performance. You may see your favorite social media influencer, athlete or entertainment star promoting a meme stock, and although it’s tempting, never make a decision to invest based solely on their recommendation. Thoroughly research every investment opportunity independently. Don’t be swayed by FOMO.

Appetite for Apps

Let’s face it, we all have an appetite for apps. We use them everyday in countless ways. There are even apps that have made it easy to invest online. Online trading platforms use various ways to get your attention to try to draw you in to invest. They often allow you to make trades for free without any fees and use flashy graphics that can oftentimes look like a game. Just because some online investing platforms may look and feel like a game, online investing is real. It’s not a game. Understand the risks involved and make sure you don’t get in over your head as you can lose real money. Gaming and trading should not go hand in hand.

Blah Blah Blah

Teens, I know sometimes you get tired of hearing lectures from parents and other adults.Trust me, I used to be a teen too! It’s easy to tune us out. Try to stay tuned into the importance of understanding the smart way to invest for your future−research every investment opportunity, understand that online trading is not a game, avoid social media pressure, and most importantly, invest for the long term. Parents, I encourage you to keep a watchful eye on these first-time investors as they navigate the new world of investing. Take stock in teen trading as a strong saving and investing partnership will go a long way toward planning for a smart financial future.

The Securities and Exchange Commission disclaims responsibility for any private publication or statement of any SEC employee or Commissioner. This article expresses the author’s views and does not necessarily reflect those of the Commission, the Commissioners, or other members of the staff.