Can a Minor Use Betterment Investing?

Introduction

Betterment is a popular digital investment platform known for its ease of use, automated investment management, and low fees. However, a common question arises: can minors, individuals under the age of 18, utilize Betterment's services?

The Legal Aspect

In the United States, minors are generally prohibited from entering into financial contracts independently.** However, there are two exceptions that may allow a minor to use Betterment:

1. Custodial Account: A custodian, such as a parent or guardian, can open a custodial account on behalf of the minor. The custodian manages the account and has legal authority over the investments. The minor gains full control of the account once they reach the age of majority (typically 18 or 21, depending on the state).
2. UTMA/UGMA Account: Under the Uniform Transfer to Minors Act (UTMA) and the Uniform Gift to Minors Act (UGMA), adults can transfer assets to minors through a special type of account. The custodian manages the account until the minor reaches a designated age, usually 18 or 21.

Betterment's Policies

While Betterment acknowledges the legal restrictions, it allows minors to open and manage accounts under certain conditions:

• The account must be a custodial account opened by a parent or guardian.
• The custodian must have legal authority over the minor and the funds in the account.
• The minor cannot access the account independently.

Benefits of Betterment for Minors

Despite the restrictions, using Betterment can offer several benefits for minors:

• Early investment: Minors can start investing and benefiting from compound interest early on.
• Automated management: Betterment's automated platform simplifies investment management, eliminating the need for minors to make complex financial decisions.
• Low fees: Betterment's low fees can save minors money over the long term.
• Educational resources: Betterment provides educational materials that can help minors learn about investing and personal finance.

Considerations

Before opening a Betterment account for a minor, consider the following:

• Age of majority: The minor will gain full control of the account once they reach the age of majority, which varies by state.
• Investment goals: Determine the minor's investment goals and make sure Betterment's services align with them.
• Risk tolerance: Assess the minor's risk tolerance and select an investment portfolio that aligns accordingly.

Step-by-Step Approach

To open a Betterment custodial account for a minor:

1. Create an adult Betterment account for the custodian.
2. Go to the "Accounts" tab and select "Add New Account."
3. Choose "Custodial Account."
4. Provide the minor's information and designate the custodian.
5. Fund the account and start investing.

Pros and Cons

Pros:

• Easy to open and manage
• Automated investment management
• Low fees
• Educational resources

Cons:

• Minors cannot access the account independently
• Custodian has full control
• Limited investment options compared to traditional brokerage accounts

Call to Action

If you are a parent or guardian considering using Betterment for a minor, thoroughly research the legal requirements, Betterment's policies, and the potential benefits and considerations. By providing minors with early exposure to investing, you can help them develop sound financial habits and set them on the path to financial success.

Interesting Stories

Story 1:

A 16-year-old named Emily inherited a small sum of money from her grandparents. Emily wanted to invest it to grow her savings for college, but she was not yet old enough to open an account in her own name. Her parents decided to open a custodial account for her with Betterment, where she could learn about investing while her parents oversaw the management. By the time Emily went to college, her investment had grown significantly, providing her with a financial headstart.

Story 2:

A group of friends, all under the age of 18, decided to pool their savings to invest together. They opened a custodial account with Betterment and selected a portfolio that aligned with their collective risk tolerance. By working together, they learned about different investment strategies and the importance of diversification. When they reached adulthood, they had a substantial nest egg that they used to fund their various goals.

Story 3:

A 15-year-old named Ethan used his allowance to invest in Betterment's target-date funds, designed to adjust asset allocation based on his age and retirement goals. Ethan's parents encouraged his financial literacy and provided guidance by showing him the Betterment app and explaining the principles of compounding interest. By the time Ethan entered the workforce, he had a solid foundation in investing and a healthy start to his retirement savings.

Useful Tables

Table 1: Betterment Fee Structure

Table 2: Betterment Custodial Account Requirements

Table 3: Comparison of Custodial Account Options