Kids' Crypto Investment: A Guide For Young Investors

The popularity of cryptocurrency has raised the question of whether it is a good idea for children to invest in it. While there are no laws prohibiting minors from investing in cryptocurrencies, most major crypto platforms require users to be adults. This means that, in most cases, children will need the help of a parent or guardian to set up a crypto investment account.

There are several ways for children to get involved with cryptocurrencies. Adults can buy crypto and gift it to children, or they can use a specialised custodial account or buy crypto ETFs in a child's custodial investment account. Some apps also allow children to earn crypto.

However, it is important to remember that crypto investing is high-risk and mostly unregulated, so children should not invest more than they can afford to lose.

Crypto wallets for kids

Crypto wallets are a way for kids to get involved in the world of cryptocurrencies. However, there are some important things to know and consider before setting your child up with a crypto wallet.

Crypto wallets are an interface with the blockchain. They create addresses to which crypto can be sent, and secret keys that enable the owner to send their crypto to other addresses. Wallets are either hot (always connected to the internet) or cold (only occasionally connected to the internet). Cold wallets are considered more secure as they are less susceptible to web-based attacks, but they are less convenient.

Kids cannot register for accounts on centralised exchanges as these have strict regulations regarding age, due to KYC (Know Your Customer) and AML (anti-money laundering) regulations. Therefore, kids need to use decentralised exchanges and wallets. However, they will still need an adult to buy the crypto for them from a centralised exchange and send it to their decentralised wallet.

Crypto Wallets for Minors

The best (and perhaps only) wallets for minors are decentralised, open-source, and do not require KYC registration. Examples include:

• Exodus
• Atomic Wallet
• Coinomi
• Trust Wallet
• Metamask

Custodial Accounts

Another option is for parents to open a custodial account for their child. This is where the child owns the assets, but the parent manages the account. The UGMA and UTMA are common examples of custodial accounts. EarlyBird is an investment app that allows adults to set up custodial investment accounts and crypto wallets on behalf of children.

Crypto safety for kids

Understanding Crypto

To begin, it's important to explain the basics of cryptocurrency to your child. Start by teaching them about blockchain technology, describing it as a secure, unchangeable digital ledger that records transactions. You can use analogies, such as comparing blockchain to a digital piggy bank, to make these abstract concepts more relatable. Explain that cryptocurrencies like Bitcoin are digital assets with unique properties, such as scarcity and decentralisation. Emphasise that these digital assets are not physical coins but exist in a virtual space.

Online Safety

Financial literacy begins with digital literacy. Teach your children about safeguarding private information, the importance of strong and unique passwords, and the risks associated with sharing personal details online. Make them aware that there are individuals with malicious intentions in the digital world, just as there are in the physical world. Encourage them to be cautious and vigilant.

Parental Supervision

It is crucial to establish clear guidelines about when and where it is appropriate for your child to engage in discussions or activities related to cryptocurrencies. Parental supervision ensures a safe environment for exploration and learning without unnecessary risks. Be open to answering their questions and guide them through their crypto journey in a way that is both educational and cautious.

Age-Appropriate Conversations

When explaining cryptocurrencies to younger children, keep the language simple and relatable. For instance, you could say: "You have a super cool digital piggy bank, but instead of holding regular money, it's got these special online coins called cryptocurrencies. These digital coins are like your own magical tokens that you can use to trade or buy stuff on the internet." As children get older, you can gradually introduce more complex concepts and the broader context of the crypto market.

Scams and Fraud

The anonymous and decentralised nature of cryptocurrencies can make them vulnerable to scams and fraud. Teach your children to be wary of get-rich-quick schemes and wild claims on social media. Review social media sites like TikTok and YouTube together, showing them how to separate reliable information from potential scams. Highlight the importance of fact-checking and critical thinking when encountering new sources.

Volatility and Risk

Cryptocurrency values can fluctuate wildly, and investments can result in significant gains or losses. Make your child aware of this volatility and the associated risks. Explain that investing in crypto is different from investing in stocks, bonds, or mutual funds. Emphasise that they should only invest money they are willing to lose, as there is a chance they might not get it back.

Safeguarding Credentials

Discuss the importance of keeping login credentials and passwords secure. Explain that just as they wouldn't share their piggy bank's secret code with everyone, they need to protect their digital passwords to keep their crypto assets safe. This will help them understand the importance of safeguarding their online information and assets.

Regulatory Landscape

While there are no official age restrictions for buying crypto, most major cryptocurrency exchanges have Know Your Customer (KYC) requirements and age limits to ensure that users are 18 or older. Be aware of the regulatory landscape in your country or region, and ensure your child understands the legal implications of engaging with crypto.

Balanced Approach

Finally, encourage a moderate and balanced approach to crypto. It can be a fascinating and educational topic for children, but it's important to set boundaries and foster a sense of responsibility. Remind them that crypto is not a game, and investing carries real-world consequences. By following these guidelines, you can help your children navigate the crypto world safely and make informed decisions.

Crypto as a long-term investment for kids

The crypto sector is now valued at over $2 trillion, with the value of a single Bitcoin at over $44,000. With such explosive opportunities, it's no surprise that many parents are considering adding crypto to their children's investment portfolios.

However, it's important to remember that cryptocurrencies are highly volatile and unregulated, so they should only make up a small part of a child's portfolio. As a general rule, no more than 5% of a child's portfolio should be in crypto.

When adding crypto to your child's portfolio, it's crucial to consider factors such as time horizon, risk tolerance, and diversification. Crypto is more volatile than traditional assets like stocks and bonds, so it may be worth considering a longer time horizon for crypto investments.

Additionally, parents should ensure they are comfortable with the level of risk associated with crypto and diversify their child's portfolio to reduce overall volatility.

How to Invest in Crypto for Kids

Children cannot directly buy cryptocurrencies, as most crypto exchanges require users to be at least 18 years old. So, if you want to add crypto to your child's portfolio, you'll need to buy it on their behalf. Here are a few options for doing so:

• Use a specialized custodial account, such as EarlyBird, which allows adults to set up crypto wallets and investment accounts for children.
• Open a joint brokerage account with your child. This gives both you and your child equal rights to decide which investments to buy.
• Buy crypto yourself and then transfer it to a hardware wallet, which can be gifted to your child.
• Set up a crypto wallet for your child through an app like EarlyBird, which offers custodial accounts for children.

Benefits and Risks of Crypto for Kids

Investing in crypto can provide several benefits for children, including improved financial literacy, a chance to learn about blockchain technology, and the potential for a stable financial future.

However, it's important to remember that crypto is a highly risky investment. The value of cryptocurrencies can change dramatically due to its high volatility, and there is no safety net if something goes wrong as no government or banking institutions regulate cryptocurrencies.

Additionally, the improper use of blockchain and the lack of strict crypto regulations pose risks for minors. As such, it's crucial for parents and community members to take an active role in protecting young crypto investors.

How to buy crypto for kids

Cryptocurrency is a new and disruptive technology that offers another way to transact business as well as to invest. Bitcoin and other top cryptocurrencies have, at times, provided impressive returns.

However, investing in crypto remains very speculative, and the potential for loss is much greater than with most other investments. It is important to communicate to kids that cryptocurrency can decline sharply in value, making it risky to own.

If you are a parent or guardian who wants to buy crypto for your child, you can do so by setting up a custodial account or a joint account.

Decide where to buy cryptocurrency

You can tap into cryptocurrency exchanges like Coinbase or with a traditional brokerage to get started investing in cryptocurrencies.

Pick a place to store your cryptocurrency

You can put your cryptocurrency into a hot wallet or a cold wallet. Transactions are faster with a hot wallet, while a cold wallet usually adds in extra security steps that take a little longer. Examples of hot wallets include Coinbase and Electrum. Examples of cold wallets include Trezor and Ledger Nano.

Purchase your cryptocurrency

Deposit traditional currencies into your account to purchase digital money. You may not want to sink all your assets into a cryptocurrency investment, but it is possible to buy fractional shares.

Keep an eye on your investment

It's likely that you want to keep your cryptocurrency for the long haul as an investment for your child. Hold onto the investment until your child can open their own digital wallet, at which point you can transfer everything in your digital wallet to them.

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Crypto apps for kids

EarlyBird

EarlyBird is a dedicated investment app that allows adults to set up custodial investment accounts and crypto wallets for children. The app supports investing in Bitcoin and Ethereum, with plans to expand to other cryptocurrencies.

EarlyBird allows any legal adult to start an account and assign a beneficiary, who is the child. From there, any adult can contribute funds, making it simple for friends and family to get involved. When the child becomes a legal adult, they gain full access to the account.

UNest

UNest is a family-friendly app that allows you to add crypto to your child's portfolio alongside traditional investments. It offers access to Bitcoin, Ethereum, and other popular digital assets.

UNest Core gives you crypto and more for a single membership fee. It is protected by bank-level security and encryption.

Step

The Step app features a unique "hybrid" secured credit card for kids and teens. It has the safety features of a debit card but functions like a Visa credit card, including the ability to build a credit history.

The app has an "invest" function that allows children aged 13 and over to buy and sell Bitcoin for a small transaction fee. They can also earn Bitcoin or cash rewards when opting into offers from companies like Hulu, Chick-Fil-A, and CVS.

Step also has a great savings tool, offering 5% annual interest on up to $250,000 in savings goals with a qualifying direct deposit.

Coinbase

Coinbase is a cryptocurrency exchange that offers many currencies and payment methods. You can buy crypto with traditional currency using debit cards or bank accounts.

Coinbase previously allowed users as young as 13, but this policy was changed in 2017, and now users must be 18 or over. However, a parent or guardian can purchase crypto on Coinbase and later gift it to their child.

PayPal

PayPal requires users to be at least 18 before allowing them to buy or sell crypto. An adult can purchase crypto and then gift it to a child when they turn 18.

Frequently asked questions