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Are brokerage accounts for teens really a good idea?

Mastering the basics at a young age — and in a low-stakes environment — could leave teens better equipped to manage their money as adults, one expert suggested.

Fidelity is betting it can introduce today’s youth to trading without turning the securities market into a high-stakes casino. The brokerage giant announced plans on Tuesday for a new product, the Fidelity Youth Account, targeted to users between 13 and 17 years old.

While the website and press release emphasize teaching teens how to save money and use a debit card responsibly, what sets this offering apart from other kid-oriented bank accounts or payment card products is that it also lets account holders buy and sell stocks, mutual funds and ETFs. The Youth Account will have no online commissions, and no subscription, account or domestic ATM fees; it also doesn’t have a minimum balance requirement. When the teen turns 18, the account converts to a standard brokerage account.

Some personal finance experts see merits in introducing young people to the world of investing in a format that encourages parental oversight.

“The advent of platforms like Robinhood are showing that young people are more interested in investing than they were in the past,” said Jonah Berger, an associate marketing professor at the University of Pennsylvania’s Wharton School. “Younger people are obviously a new customer segment that are interested in investment and saving,” he said.

James Fielder, an adjunct professor of political science at Colorado State University who studies gamification, said it’s a plus that Fidelity avoids gimmicks like digital confetti, badges and other electronic trophies. A Fidelity spokesman said the platform will not incorporate any gamification elements. According to critics of trading apps like Robinhood, this kind of feedback can subtly prompt users into a higher level of interaction with the app and induce greater impulsivity.

“Their focus is primarily on saving and how do we do this responsibly,” Fielder said. “I think that model is a lot better than what Robinhood was doing.”

Still, he noted, Fidelity puts much of the onus on parents to provide kids with an education in financial literacy and monitor their account activity. “Fidelity should be providing parents with tools to keep track of their child’s activities,” he said. Fidelity says parents get notifications about their teen’s debit card use and trading activity, and it offers an educational “Youth Learning Center” account holders can access through the app.

“This looks like a good way to introduce teenagers to investing with some guardrails in place. I like the fact that it allows for parental supervision and appears to appropriately limit the investment options,” said Barbara Roper, investor protection director for the Consumer Federation of America.

Fidelity says the account can “easily be funded” through a parent’s own Fidelity account (which is a prerequisite of signing teens up for one of their own) as well as via mobile check deposit or bank transfer. The account can also be funded by the teen transferring money from a CashApp, PayPal or Venmo account.

Susan Zimmerman, a therapist and co-founder of Mindful Asset Planning, said parental involvement is important, since teenagers plus day-trading could potentially add up to a money-losing proposition. “Teens are often more impulsive and may move [funds] around too much, sabotaging potential gains,” she said.

"Teens are often more impulsive and may move funds around too much, sabotaging potential gains."

Tim Ranzetta, CEO and co-founder of the nonprofit Next Gen Personal Finance, said parents should instill in kids the importance of savings as a distinct activity from their ventures into investment. “Will they be tempted to take money that they are saving for college and take a flyer on an individual stock?” he said. “I might recommend that you have a separate main savings account with another institution so that the temptation is harder to implement.”

In addition, although teens won’t be able to trade on margin or buy options, they could encounter cryptocurrency — along with the volatility associated with that asset class. A Fidelity spokesman said Youth Account holders would be limited in their investment options to stocks, exchange-traded funds and Fidelity mutual funds. In an email, though, he added, “If any of the funds have exposure to crypto currencies, the teen could gain exposure that way.”

This is one reason why parental engagement is critical, Roper said. “Crypto is a risky, largely untested investment which holds a clear allure for young investors,” she said. “While I appreciate that the exposure to crypto would be limited to indirect investment through funds, as opposed to the direct access that apps like Robinhood provide, this is something I’d want to closely monitor if I were the parent of a young teen investing through this type of account.”

Experts argue, though, that the chance for teens to get hands-on practice investing has the potential to be a valuable learning opportunity — especially since parents can implement curbs to limit losses. “We can teach young people about investing, but applying that knowledge and actually doing it is so incredibly important,” Ranzetta said. Only one in five kids gets any personal finance education in school, he added.

“There are risks to investing, period… I don’t know whether those risks are unique to young people,” Berger said. Mastering the basics at a young age — and in a low-stakes environment — could leave teens better-equipped to manage their money as adults, he suggested. “Think about cell phones and access to the internet and social media — all are powerful tools that… can have down sides if not used carefully.”