Teaching kids about investing early is important for many reasons. It helps children develop a strong understanding of how the share market works and how to make smart financial decisions. It also instils in them the importance of saving, budgeting and managing money. Recently investing for kids has become a hot election issue at the NSW state election with the government promising a $850 million Kids Future Fund if re-elected.
In this article, I discuss:
- Why use investing apps to invest for kids?
- The features an investing apps for kids should have
- Examples of investing app for kids
Why use investing apps to invest for kids?
When I was a kid, learning about the share market involved opening up the newspaper or logging in to E*Trade on my dad’s computer.
But times have changed. Over the last 20 years, the rise of technology has led to micro investing and robo-advisers, which have made it easier and more affordable for parents to invest for their kids and monitor their investments on an electronic device. These platforms provide access to a wide range of investment options, such as exchange-traded funds (ETFs) and index funds, at low fees. They also offer educational resources and information to help parents and kids understand the stock market and make informed investment decisions.
Some books offer great investing advice for children. Barefoot Kids and The Barefoot Investor (both by Scott Pape) come to mind and are worth reading. These books echo Stockspot’s philosophy of low-fee, index investing as the way to build wealth for the long-term.
Using an investment app to teach kids about investing can also be beneficial because it can make the process more accessible and user-friendly. I think investment apps can be a great way to introduce kids to the stock market and help them learn the basics of investing. They can also make it easy for kids to track their investments, monitor their portfolio and make informed investment decisions. Some apps may provide educational resources and information that can help kids understand the stock market, and make the process interactive and engaging.
Additionally, by learning about investing at a young age, children have more time to take advantage of the power of compound growth, which can help them build long-term wealth and financial security.
The features an investing apps for kids should have
There are a few important factors to consider when selecting an investment app for kids.
Look for an app that provides a diversified option. Diversification is an important principle of investing. It’s especially important for kids who are just starting to learn about the stock market. Diversification means spreading investments across different types of assets, industries, and even countries. The goal is to spread the risk, so that the performance of one investment doesn’t heavily impact the overall portfolio.
By diversifying their investments, kids can reduce the risk of their portfolio and increase the chances of long-term success. For example, if a child invests all of their money in one company and that company’s stock price falls, their entire investment is at risk. But if they had spread their investments across multiple assets, companies and industries, the impact of one company’s poor performance would be less severe.
Diversification can also teach kids how to balance risk and reward and make informed investment decisions.
Low fees are important for kids investing for the long-term because they will have a significant impact on the growth of their investments over time. Investment fees, such as management fees or brokerage, will eat into the returns of an investment, reducing the amount of money that the child will have in the long-run.
For example, let’s say a child invested $5,000 and added $200 per week for 10 years at an average annual return of 7.5%, with a 0.5% fee, the value of their investment would grow to approximately $149,324.
In contrast, if the child invested the same amount for the same period of time at the same return rate but with a 2.5% fee, the value of their investment would be approximately $132,978. This represents a difference of $16,000 due to the higher fee.
As you can see, even a small difference in fees can add up to a significant amount over time. This is why it is important to consider fees when choosing an investment option, especially for long-term investments.
Low fees can also make it easier for kids to invest, as many investment apps and robo-advisers offer low-cost options that can be accessible for kids and parents.
Having an easily accessible app to track their investments is important for a few reasons.
It makes it easy for kids to track their investments and monitor their portfolio. They can quickly check how their investments are performing, and make informed investment decisions. An app can also make it easier for parents to supervise their children’s investments and help them make informed decisions.
An app can make the process of investing more interactive and engaging for kids. They can learn about different types of investments and how they combine to achieve different goals, in a fun and interactive way. They can also set-up regular contributions or make withdrawals with just a few clicks.
A track record, also known as a performance history, is an important factor to consider when selecting an investment option for kids because it can provide insights into how the investment has performed.
When evaluating an investment option, it’s important to look at the performance history over a significant period of time, such as five to 10 years, to see how the investment has performed in different market conditions. A track record that shows consistent returns over a long period of time can be an indication of a well-managed investment.
It’s important to note that past performance is not always indicative of future performance and other factors such as fees, diversification and risk management should also be taken into account when making any investment decisions.
The app should provide educational resources and information that can help kids understand the stock market and make informed investment decisions. For example, we have a series of YouTube videos to help parents and grandparents discuss investing with their kids.
The app should have strong security measures in place to protect personal information and investment accounts. This article discusses 3 ways to keep your shares safe.
The app’s investment strategy should be tax-efficient, which means that less of the investment return is lost to taxes. Here are a couple of ways to make a long-term investment for kids tax-efficient.
- Capital gains distributions: Capital gains distributions are the profits that a fund generates from buying and selling securities. Some investment funds (like index ETFs) are structured to minimise capital gains distributions, which can reduce the tax liability.
- Diversification: Diversifying the portfolio across different types of assets, industries, and countries can also help minimise the overall tax liability because gains and losses are balanced out.
It’s important to note that tax laws change often, and it’s always best to consult a tax professional or accountant to determine the most tax-efficient investment strategy for a child’s long-term investment.
Examples of investing app for kids
There are several Australian brokerage platforms that offer investing for kids including Superhero and SelfWealth.
Using a brokerage platform when investing for kids can provide access to a wide range of investment options and low transaction fees, which can help diversify a child’s portfolio and maximise returns. It also offers convenience, as many brokerage platforms can be accessed online or through mobile apps, allowing parents and kids to manage and monitor their investments from anywhere.
However, using a brokerage platform also carries risks such as the potential loss of money, and a lack of diversification if the child or parent is not careful in selecting a diverse range of investments. It’s important to research and understand the investment options before investing and to choose a reputable and well-established brokerage platform with strong security measures in place.
Using a micro-investing app like Raiz, Spaceship or Spriggy when investing for kids can provide an easy and convenient way to start investing with small amounts of money, and can also provide a diversified portfolio. Some of these apps also offer features such as round-up or spare change investing which can make it easy for kids to start building their savings.
On the other hand, micro-investing apps may not provide personalised advice and may have higher fees for small accounts which can eat into the returns, especially over a long period of time. It’s important to do research and understand the fees and features of the app before using it for investing for kids and monitor the portfolio regularly to ensure it aligns with the child’s investment goals.
Using ETF providers, like Vanguard, when investing for kids can provide access to a wide range of low-cost, diversified index funds and ETFs. Vanguard’s funds have a reputation for being among the lowest cost in the industry, which can help maximise returns over the long-term.
On the other hand, Vanguard only offers its own funds, which means that investors may not have access to other ETF issuers, and may be limited in terms of diversification options. Additionally, Vanguard funds may not always be the best fit for all investment goals and risk profiles and Vanguard doesn’t offer personal advice to match you with an appropriate investment strategy. It’s important to research and compare the fees, performance, and diversification options of Vanguard funds with other options before investing, and ensure that the funds align with the child’s investment goals.
Robo-adviser (like Stockspot)
Investing with Stockspot for kids can provide several benefits including access to personal advice, ongoing portfolio rebalancing, and low-cost diversified ETF portfolios. We continuously monitor and rebalance the portfolio to ensure it stays aligned with your goals and then provide a simple one-page tax statement at the end of each year. Additionally, we’re continually updating our education and resources to help kids and parents understand the stock market and make informed investment decisions.
One of the disadvantages of using Stockspot and other robo-advisers is that there is a $2,000 minimum investment requirement, which may be too high for some children or families. However, some families start by depositing a smaller amount like $100, and the money is just not invested until it reaches $2,000.
It’s important to consider the child’s investment goals, risk tolerance, and available funds before investing with Stockspot.
Overall, investing for kids is an investment in their future, not just financially but also in terms of their personal and financial development. It teaches them valuable skills that will serve them well throughout their lives and empowers them to take control of their financial future.
An app can provide kids with an easy and convenient way to start investing. By using an app to invest, kids learn how to save and budget their money, and also learn about the power of compound growth. Additionally, many apps provide educational resources and information to help kids understand the stock market which can help them develop financial literacy skills and healthy long-term financial habits.
If you want to learn more about investing for kids, my YouTube has a kids investing series of videos with some more tips and ideas: https://www.youtube.com/playlist?list=PLG_2uoxbwYhLPOeZN1KRh4n1XkkXzOxtY