In a first-of-its-kind effort to get college students saving and investing early, the University of Kentucky is offering to seed brokerage accounts for all of its 31,500 students. It’s free money, ostensibly, but the program, called UK Invests, requires that students accomplish certain tasks before the school deposits any money in their accounts.
Many colleges have investment clubs, and some universities offer classes on personal finance. What sets UK Invests apart is that it is university-wide, and cash-strapped students don’t have to scrape together a penny of their own money (although they can if they wish). The school is offering to contribute up to $250 a semester into each student’s account, depending on which tasks they complete.
Some payouts are tied to learning about money. Complete a noncredit online course on budgeting and get $15. Attend a talk on the magic of compounding and other investing topics, and Kentucky will deposit $30 in your account. But students can also earn money in other ways: by attending a workshop on coping better with stress ($10) or by uploading their résumé to the career center ($25).
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By offering incentives for tasks that can improve students’ health, academic performance and employability, the university is hoping to “hardwire habits that will lead to a lifetime of meaning and purpose,” says Kirsten Turner, Kentucky’s vice president for student success. Studies show that teens who receive personal finance instruction tend to have fewer financial struggles later in life.
Fidelity, the brokerage firm connected with UK Invests, is adding incentives as well. Once a student has a balance of at least $50, Fidelity throws in $100. And it is matching 10% of the first $300 deposited. In all, Kentucky Wildcats who signed up last fall can get up to $630 this academic year.
How it works
To get started, students must sign up for the Fidelity Bloom for UK Invests app, which consists of two brokerage accounts, one for cash and one for savings or investments. Students also must fund their accounts—with their own money, the school’s contributions or both.
Once that’s done, the Fidelity Bloom app suggests three basic low-cost mutual fund options, depending on the student’s tolerance for risk. There’s a fund for students who are “cautious” about risk, a “balanced” option for more moderate risk takers, and a “bold” one for more aggressive investors. Kentucky students can purchase shares in the mutual funds in the Bloom app for as little as $1.
Although only a few mutual funds are available to trade in the Fidelity Bloom app, UK students can invest in other mutual funds, exchange-traded funds and stocks or bonds by logging into their Bloom account through the firm’s primary website (www.fidelity.com) to execute a trade. Money that’s not invested will earn interest (currently 4.3%) in a Fidelity money market fund.
Of course, students can withdraw cash at any time, but the university hopes they stay invested. Time is their biggest advantage, says Eric Monday, the university’s executive vice president for finance and administration.
Some students have gotten the message. Sophomore Elizabeth King has received more than $200 since she opened her account in the fall of 2023, in part by attending career fairs. She invested in a low-cost S&P 500 index fund and plans to hold it for the long haul. “I’m choosing to put it aside and use the power of compounding,” she says, a concept she learned at an investing presentation. She’s also looking forward to market dips. “I like to invest when the market is low because I can buy it at a cheaper price,” which she believes will pay off when the market rebounds. “It’s kind of fun!”
As of late October, more than 3,700 University of Kentucky students had opened accounts, and the university had deposited more than $160,000 in incentives. One caveat: Any money received from the university or Fidelity is taxable as income in the year it is received.
Investing lessons
It is too early to tell whether this experiment will turn Kentucky students into Gen-Z Warren Buffetts. Kentucky tested the program in the 2020–21 school year with university athletes. It went well, so the school expanded the offering to all students this academic year. Next year, it hopes to offer UK Invests to its employees.
Young people who aren’t at the University of Kentucky could consider investing with financial service firms that allow you to buy shares in an ETF or a stock for as little as $1, such as Fidelity, M1 Finance and Robinhood. Schwab, Acorns and SoFi customers can invest with as little as $5 a time. As you invest, keep these basic guidelines in mind:
- Keep it simple. Monday says Kentucky purposefully designed UK Invests to nudge students into low-cost, broad-market index funds. Fidelity Zero Total Market Index (symbol FZROX, expense ratio 0.0%) holds more than 2,600 stocks. Or consider Vanguard Total Stock Market ETF (VTI, 0.03%) and iShares Core S&P 500 ETF (IVV, 0.03%).
- Take on a little risk. College students might find a broad index fund boring, says Michael Kelly, a Lafayette College economics professor and adviser to the school’s investment club. He recommends they explore the middle ground between plain-vanilla index funds and what he calls “lottery ticket stocks” by buying sector or style stock funds.
- Small-company stocks are cheap these days, says Kelly. Two funds to consider: iShares Core S&P Small Cap 600 ETF (IJR, 0.03%) or Vanguard Small Cap Index (VSMAX, 0.05%).
- Sector funds offer a safer way to invest in long-term trends than individual stocks do. Two of our favorites include Invesco S&P 500 Equal Weight Health Care ETF (RSPH, 0.40%) and Technology Select Sector SPDR ETF (XLK, 0.10%).
- Or go active and invest for growth. “When you’re 19 years old, you need growth, not income,” says Omar Aguilar, chief executive of Schwab Asset Management. Two actively managed growth funds we like are Fidelity Blue Chip Growth (FBGRX, 0.69%) and Primecap Odyssey Growth (POGRX, 0.66%).
Note: This item first appeared in Kiplinger’s Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.
