At age 14, Americans can begin to work, but the privilege of investing this money comes much later on.
The limits that legislature puts on minors to partake in even long-term, low-risk investments allow investing to become inaccessible and keep generational wealth where it always has been.
It is ridiculous that teens can make their own money, be taxed on it, and yet not be able to invest it into the American economy until they are adults.
Young adults cannot open a Certificate of Deposit, a relatively low-risk short-term investment in their name, until they are 18 and even 19 in some states, according to Investopedia.
Otherwise, these accounts must be created and managed by a parent in a custodial account in which the minor it belongs to has no control over it. A custodial account is exactly what it sounds like, an account in a child’s name but run entirely by a parent where the child cannot have any direct influence over their assets. If you are under 18, “you can make investments only under the supervision of your parent (or an adult) through a custodial account,” according to Teenvester.
Allowing the financial future of a teen to rest solely on the competency of their parent becomes a stark inequity. Not all parents can provide adequate resources to help their children invest and provide financial guidance, depending on the circumstances. For example, a wealthy stay-at-home parent educated in the importance of investing early to manage their wealth is more likely willing to open and manage a custodial brokerage account for their child without even being asked. Contrast this with a household that would benefit significantly from having their child invest their savings early, such as a single working parent who does not come from wealth and may not have the time or expertise to open an account for their working child, even when prompted. The custodial account system creates the perfect recipe for continuing economic inequality in a country where the wealth gap continually increases (Pew Research Center).
More than 6 million teens had a job in 2021 (Pew Research Center), yet none had the independence to do anything meaningful with the money they earned.
Most financial firms agree that investing early is the easiest way to build wealth, so why isn’t this an option accessible to American teens whose intellect is trusted enough to have jobs and other societal responsibilities?
Teens should be able to see the stock market as an opportunity to break free from generations of investing ignorance to allow wealth to circulate in new areas. Restricting teens from investing creates a mystique around the stock market that could cause them to be suspicious of investing their funds later on.
Allowing teens to govern their finances could also help combat the lack of retirement savings that current adults have in the country. A survey conducted by GO Banking Rates revealed that 37% of Americans have not even started saving for retirement, and the secret to fixing this may start with allowing American youth to have more freedom not just to spend but invest their finances.
The main reason why teens are unable to invest in stocks, bonds, or funds is because being under 18 prevents them from entering a “legal agreement” or contract. However, if teens can have their own checking accounts to spend their money and get taxed on annual income over $12,950, they should be able to open brokerage accounts to invest toward a better future.
When teens can learn about investing and partake in it without having their entire financial future run solely by their parents, the future for teens and economic equality will be brighter.
