If you’re a regular visitor to our blog, you’ve had access to lots of information about helping your kids develop savings plans and the importance of setting short-and long-term financial goals. Most kids easily grasp that saving for the short term can result in new video games, desired toys, etc. Long-term saving for things like cars and college grow through interest payments, but this is also an opportunity to help your child (and maybe yourself) explore investing in the stock market.
Even adults can be put off by the complexities of the stock market, but with smart investing, the long-term rewards can be great, and getting started early helps build experience, confidence and financial savvy that will stand children well throughout life. The key in getting kids interested in stock investing is to follow the K.I.S.S. principle, Keep It Simple Sweetie.
First, help your child identify their long-term financial goals. Does Andy want to be a doctor? Then he might need to pay for medical school. Does Ali want to be race-car driver? Then she’ll need a car so she can learn to drive first. Investing can make those dreams come true when it is done safely and smartly. The safest stocks are of well established companies with good growth outlooks, and the smartest way to earn through stocks is to hang onto them for years and sell at a higher price than you bought.
Virtual Investing Don’t even think about diving into real investing until you and your child do some virtual investing. A great online tool to do some virtual investing with is The Buffett Bucks Portfolio at the Secret Millionaires Club website. Here kids can learn about stocks, invest virtual dollars, track their progress and see how their investments rank against other young investors.
Talk with your kids about companies that might be of interest to them, those they have some familiarity with make investing more fun. McDonald’s (NYSE: MCD), Disney (NYSE: DIS), Coke (NYSE: KO), and Nike (NYSE: NKE) may be good picks, but it’s fun to think about all the possibilities, so do some brainstorming together. Look the companies up online and see what they’ve got to say, how they see the future, and if they’ve had any recent news that might impact their share price positively or negatively. There’s usually an Investors page that provides such information.
The Mandatory Risk and Reward Discussion It’s kind of like the best tasting food is the worst for you. Drat! Nonetheless, kids need to know that there are various levels of risk involved in all stock investments and the better the chance for high reward from an investment, the more risk there is for losing money. So good research, strong companies and lots and lots of patience are necessary. Stock investing is for the long term, and there is no disputing that those that hang in there are winners in the long run. The whole point of getting kids interested is so they can be in it long term.
When You Are Ready to Buy When you and your child are ready to make a purchase, depending on your state laws, you can set up a custodial account under the Uniform Gifts to Minors Act or Uniform Transfer to Minors Act (minors can’t own stock in their own names). It’s easily done through investment brokers, who may be independent, discount, or affiliated with your bank or credit union. Then you and/or you child can contribute to the account and you can choose, buy and keep track of your stocks together. Just be sure to:
- Buy stocks of established, strong companies
- Reinforce that establishing and maintaining long-term savings comes before stock investing
- Keep the money invested small at first
- Use savings accounts for short-term needs like video games, movies, etc.
Stock investing opens up a whole new vista of financial literacy for your kids (and maybe for you!), so even if you decide not to invest, at least check it out.