1) Custodial Accounts and Investing Under 18
Young people have always found it challenging to begin investing. The minimum age requirement for many investment applications is the age of majority, which is often 18, depending on the state. But as we all know, learning and investing early on will benefit you in the long term. A youngster will have a head start in paving the road to financial freedom if they begin to develop a foundation in finance at an early age.
What are custodial accounts?
A custodial account lets children under the age of majority invest with a sponsor’s approval. A sponsor can be any eligible investor who is over the age of majority and is a US citizen, most often a parent or relative of the young investor!
Custodial accounts operate similar to an adult brokerage account. There is no contribution limit. You can also invest in a variety of investment assets from stocks, ETFs, mutual funds and even real estate!
Custodial accounts are a flexible way to invest with some tax benefits and more importantly, legal protections for the minor.
There is no limit to how much a custodian can put in the account at any stage and an individual can contribute up to $15,000 ($30,000 for a married couple) to an account without incurring the gift tax.
Investing early with a custodial account lets young investors learn, take risks and familiarize themselves with the markets with the safety net and support of their parents.
With apps like Bloom, parents can closely monitor their teen’s success and learning.
Does Robinhood have custodial accounts?
The short answer: NO.
Custodial accounts are not offered by Robinhood or many other similar applications. Investment platforms like Public, robo-advisors like Wealthfront and Betterment, as well as free investing choices like Robinhood are only available to adults.
Investing as a teen under a parent’s name is illegal. Investing money under someone else’s name is illegal unless you have a brokerage license. Why take the illegal road, when you can invest safely and legally as a teen with an app like Bloom?
For adults, there are countless options, but for kids, it’s a different story. The barrier to entry is significant, but the advantages to investing early are clear. The freedom to invest whatever you chose and withdraw when you would like, is a typical feature of a custodial account. Bloom accounts give you extra peace of mind due to freedom of withdrawals and deposits, parent controls and safety locks on high risk stocks.
2) Why Helping Your Child Invest is Important
Things are as uncertain as ever in the world we currently live in. Being financially stable is more important than ever, especially with the student loan crisis showing no signs of abating. We now have to set aside money for two days of rain while preparing for the occasional storm.
Financial Security Allows for More Freedom Down the Line
We put our kids first and adore them more than anything. No matter what job path they choose, having financial security is crucial if we want children to achieve in all facets of life. We all know that discussing money is rarely enjoyable, and it may be challenging to teach your children about "portfolio diversification" or "stock splits."
Making Financial Literacy Fun
When you answer a child's query about stocks in overly complex financial language, their eager smile usually disappears. Custodial accounts have a role in this. You will hold a child's attention if they are involved in what they are learning and can see, for instance, that their $10 has increased to $15. They learn by doing, and being able to tangibly observe how their money might increase will provide them the chance to educate.
You have done a fantastic job as a parent laying the groundwork for financial success if your child turns 18 and has already accumulated years of investment experience and knowledge.
Learn with a Safety Net, Before the Stakes Get Real
The only difference between an 18-24 year old and a teenager under 18, is that one lives on their own with bills to pay, and the other still lives under the safety net and protection of their parents.
Teach your child to take practical risks when they have a clear support system and no real bills to pay. Helping your teen learn now, gives them an advantage before the stakes become real.
But why not just save? Isn’t it safer?
Let’s take a look at both ends of the spectrum, and then the sweet spot.
Risky
Investing carries a certain amount of risk; how much depends on your time frame and objectives. Alternative ways to generate money through financial products like options are made possible by trading platforms like Robinhood. Options certainly provide a chance to gain money, but the danger of losing it is considerably higher, and many young people make the error of starting to trade items they do not completely comprehend.
Low Risk
Savings accounts fall on the opposite end of the spectrum. Although they are quite secure and provide a rate of return, the rate is so low that it could be worthwhile considering alternatives. The national average interest rate is 0.06% as of August 2020, while some larger banks are giving rates as low as 0.01%. Diversifying your portfolio is crucial for safe investing, especially in volatile market conditions.
The Sweet Spot
Longterm investing and practical choices can reduce risk. This is the sweet spot, and the kind of investing that goes into your longterm retirement accounts.
Bloom teaches kids the importance of diversification, a core concept allowing them to reduce risk and make smart investing decisions.
3) What Makes Bloom Unique
In addition to offering a premium investing experience for families, we also educate our teens on the basics of financial literacy.
Education
Bloom grants access to 150+ education modules, financial literacy content and learning simulators.
Parental Safety Controls
Parents on Bloom get to monitor their teen’s education progress and set custom safety controls.
Fractional Investing
On Bloom, thanks to fractional investing, you can purchase stocks and crypto with as little as $1.
Conditional Orders
Looking to take the next step? Bloom offers limit orders for investors who want more control over their investments. We also offer specific guides on how to make a limit order, so beginners can manage risk safely.
4) How to Invest under 18 with Bloom
As a parent
- Head to https://parents.joinbloom.co
- Sign up and create an account
- Verify your identity and invite your teen
- Deposit funds for your teen
- Done! Now you can set custom controls and monitor your teen’s education progress
As a teen
- Download Bloom from the app store
- Create an account with your phone #
- Invite your parent
- As your parent sets up the custodial account, earn Oinks for learning about stocks or play with the investing simulator.
- Done! Start investing with funds deposited by your parent, or yourself.
