Jean Chatzky: How to give kids investments

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What’s your go-to gift for your kids, a favorite niece or nephew or your grandkids?

Why not try investments? Giving the gift of stocks or mutual funds is not only generous, it can be a good way to teach kids and young adults about saving and investing in the markets. Unlike toys and clothes, they’ll never grow out of a solid stock or mutual fund, and if the child holds on to it for the long haul, it can truly be the gift that keeps on giving.

Unfortunately, the logistics of buying investments for minors can be difficult. Shares must be held in a parent’s or guardian’s name, partial shares can be difficult to purchase and encouraging kids to track and watch their new investments can sometimes be a challenge. Here’s what you can do to make the process easier and more fun.

Check out the investment gift-giving sites. The newest, SparkGift, allows you to buy shares or partial shares in stocks and mutual funds for gifts between $20 and $2,000 for a fee of $2.95 plus 3% of the gift value. (Partial shares can be important when you consider a share of Google in late October was trading above $700.) Other companies such as UniqueStockGift and GiveAShare allow you to buy a framed stock certificate of a single share to give to the recipient. You’ll pay transfer and other fees on top of the share price.

Choose carefully. The gift-giving sites often list the most popular gift stocks on their sites. The list is full of names that kids know well, such as Apple, Netflix and Coca-Cola. But some experts question the wisdom of buying individual stocks for kids.

“I’m not sure this is the best introduction to the markets,” says Beth Kobliner, author of the upcoming book “Make Your Kid a Money Genius, (Even if You’re Not),” who served on the President’s Advisory Council on Financial Capability for Young Americans.  “If they do well with 1 or 2 stocks, they’ll assume they are ‘good at it.’ If they do poorly, they’ll think the opposite and not want to invest again.” That’s why ETFs and index funds are Kobliner’s preference.

Other experts argue that giving shares in companies that kids can relate to will help engage them more with the investing process and motivate them to learn how the stock market works.

“The best way to learn is by doing,” says Peggy Mangot, SparkGift’s CEO. “If kids have some skin in the game, that can help them understand investing.”

What type of investment you choose will depend on the child’s age and his or her interest level in money and the markets.

Educate into the future. Whatever type of investment you choose, it’s important to remember that this isn’t the type of gift you give and forget about. Investments work best when you can keep in touch with the recipient, help him or her track the progress of the investment and explain the ins and outs of the market and investing along the way.

Follow up on paperwork. If you’re giving investments to someone under 18 other than your own kids you must have the parent or guardian set up a custodial account. That can take some time and the parents may need some support. SparkGift makes this process easier because it notifies the recipient of your gift by email then allows the parent to set up a custodian account through its website. Nonetheless, it’s a good idea to make sure parents have actually finished this task.