Teens Trading Stocks? With Rates This Low, Why Not?
(Bloomberg Opinion) -- The jokes almost write themselves: Fidelity Investments will now allow 13- to 17-year-olds to open investing accounts (as long as their parents are clients). Angsty teenagers in the financial markets — what could possibly go wrong?
I can’t believe I’m saying this, but giving teenagers access to buying and selling stocks and exchange-traded funds is probably smart, both for Fidelity and for financially savvy parents. I certainly wouldn’t have given my teenage self access to an investing account in the early 2000s, but changes in the market and in trading make it a much more reasonable proposition today.
For one thing, teenagers won’t face account fees or commissions on their trades of U.S.-listed stocks, Fidelity mutual funds and ETFs, the company said Tuesday in a statement. The move to zero fees across the brokerage industry in late 2019 is especially beneficial to those investing small sums; previously, clients might be charged a flat commission regardless of whether they placed an order for one share or for 100, creating a significant hurdle to turn a profit.
In another relatively new innovation, Fidelity also offers the option to buy fractional shares of stocks and ETFs, in what it calls “Stocks by the Slice.” Assuming this also applies to these youth accounts, it would make it easier for them to sock away their allowance or money from a summer job right away rather than waiting to save up more than $400 for a share of the SPDR S&P 500 ETF Trust or more than $3,000 for a share of Amazon.com Inc. That also presents an opportunity to learn the benefits of dollar-cost averaging, a bedrock of responsible investing that works to reduce the volatility in a portfolio.
Then there’s the rise of ETFs, which took in a record $502 billion in 2020. In many cases, these funds have slashed costs to nearly zero themselves and are indexed to a broad swath of the overall market, making them both cheap and diversified investments. Yes, there are popular offerings like the ARK Innovation ETF (ticker: ARKK) that have plunged in price recently, but parents will be allowed to monitor the activities of their children and can either set some parameters on what they can buy or let them learn the hard way the perils of taking risks with their money. (Teenagers won’t be allowed to trade options or borrow on margin.)
This kind of financial literacy is something that few schools teach. “Our goal for the Fidelity Youth Account is to encourage young Americans to learn through action and foster meaningful family conversations around financial topics,” said Jennifer Samalis, senior vice president of acquisition and loyalty at Fidelity, where investors 35 or younger reportedly opened triple the number of retail accounts in the first quarter compared with a year earlier.
The closest I got to this kind of learning experience was picking a company’s stock to graph when I was in fifth grade (it was 1999 and I selected Cisco Systems Inc., one of the darlings of the dot-com era). Studies show that women are less likely to own stocks because of a lack of confidence and knowledge — to the extent they begin investing with some guardrails as teenagers, it might help close this gender gap among adults.
Perhaps the most obvious reason to give teenagers access to financial markets, though, is that traditional means of saving are effectively defunct. The average one-year certificate of deposit rate is 0.18%, according to Bankrate.com, while savings accounts offer a paltry 0.06%, according to the Federal Deposit Insurance Corp. There’s simply no way to teach financial responsibility the old way with interest rates that low — what’s the lesson in locking up $500 of birthday money for 12 months to have it earn less than $1? Even so-called high-yield offerings from the likes of Ally Financial Inc. and Goldman Sachs Group Inc.’s consumer bank, Marcus, simply don’t provide a way for teenagers to learn the benefits of putting away cash for the longer term. This is particularly true if the Federal Reserve succeeds in pushing inflation above 2% after years of falling short of its target.
The central bank is not in any rush to “normalize” interest rates. And that’s one of the main reasons having teenagers in the stock market might become the new normal.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Brian Chappatta is a Bloomberg Opinion columnist covering debt markets. He previously covered bonds for Bloomberg News. He is also a CFA charterholder.
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