Introducing kids to investing
Dear Money Matters,
I would like to start my children off in investing. I thought of buying them each a "starter" stock in a reputable company. Which company would you suggest, and how do I go about doing it?
What a terrific idea. Getting kids interested in investing at an early age can spawn a lifelong interest in positive financial habits. In fact, the mechanics of buying stocks for kids is rather simple. The easiest way to do it is to buy the stock yourself, then gift it to your kids. (Unless you buy a share of
Berkshire Hathaway, the $76,000-a-share stock, you won't run afoul of the gift tax.)
The trick, however, is making certain your kids become interested in what can seem a rather abstract notion. To do that, look at companies that may engender their interest, such as Disney (they can also obtain an actual stock certificate that is decorated with various Disney characters). Another possibility is chewing gum manufacturer Wrigley's, which offers every stockholder of record 20 packs of gum every Christmas.
From there, explain what a stock is and how to follow its progress. Show your children how to look up a stock quote in the newspaper or online. When news comes up about the stock they own, clip the story and share it with them. Over time, explain how a stock's price, in part, reflects how the company is performing. This is especially easy if things have gone well and the stock price has jumped accordingly.
Another option you may wish to consider is a mutual fund geared to children. These are funds whose portfolios are filled with companies that would interest young people. The funds are also education friendly, as they usually provide reams of informative, colorful reports and explanatory materials.
However, as you would do with any other sort of investment, don't choose a stock or fund solely on the basis of its potential appeal to your little guys. Do the necessary legwork to research your options, including asking for annual reports and checking out analyst recommendations. This is important on several levels -- for one thing, you're showing your children that selecting the right investment isn't simply a matter of tossing darts at the stock page. On top of that, if by chance you lose money in a poor investment, that may discourage your child from developing any interest in long-term investing. And that's the last thing that anyone would want to happen.