Investing for Kids
From LoveToKnow Kids
No matter how young your child is, it is the perfect time to begin thinking about investing for kids. By starting a portfolio for your child when he is young, he will be better off financially when he becomes an adult. As he grows older, you can use his investments as a lesson in money management and savings.
Teaching Your Child About Money
Starting your child young and involving him in the process is a great life-long lesson. Investing for kids can be as simple as a piggy bank or as involved as letting him play the stock market.
Investing for Kids
Investing for kids should begin happening at birth. In fact, it often does without you realizing it when an aunt or grandparent gives a present of a CD or bond. However, many parents do not think about the benefits of starting to invest at a young age until their kids are much older.
No matter how old your child is, now is the time to begin teaching kids about investing. If you do not have a lot of money, start small. Even a $100 CD rolled over yearly will slowly add up as you continue to add to his savings. If you are really struggling financially, try saving pocket change for your children. You will be surprised how quickly a change jar can add up.
Getting Started
The easiest way to get started is to take a trip to the bank. If your child is older, take him with you. Meet with a financial advisor and let him know what your long term goals are. If you only have $25 to begin with, great! The key is you are beginning.
You will want to review the different programs available with your financial advisor. Certain programs are designed towards investing for kids. The government offers programs that will help you save for your child’s college tuition tax deferred, such as an education IRA.
What to Consider
Before heading to the bank, you want to take a few moments to review what you plan to get out of investing for kids. For younger children, you will need to make goals on your own. For any child who is in grade school or above, let him contribute to the plan.
Here are a few things to review:
- What are you saving for? College, a car, marriage, graduation, a trip (Do not be afraid to save for more than one goal.)
- How much would you like to save? Keep your goal in mind.
- When do you want to use/have access to the money?
- Would you like a high or low risk investment? Some people prefer a low risk investment where you make a smaller percent on your return or a high-risk where you can earn a higher return but may also lose your investment.
Include your child in the above discussion on what he is saving for. If you want the money to go towards college, and he wants a new car, compromise. Decide on what percent of the money he can have for his car, as well as which investments are dedicated towards his goal. For example, if he gets a job, let him put 50% in a money market account for the car and the other 50% in the IRA for college. Involving your child in investing includes both making decisions and adding dollars. If he is too young for a job, consider paying him to do chores.
Savings Account or Money Market
At a young age, a child does not need a checking account. However, a savings account or money market is perfect for watching his balance grow. Try to add a little money every month. If you do not have a lot of disposable income, skip a meal at McDonald’s and put it in savings instead.
CD’s
A certificate of deposit (CD) is a low risk investment. The rate varies monthly, based on the prime rate set by the federal government. The rate often varies based on the length of time you plan to invest the money. This is a good secure investment for long term goals.
Bond’s
Bonds are another safe investment. They have a low-return on the investment, but are low risk and backed by the government. If you begin with bonds early, they will add up by the time your child is ready for college.
The Stock Market
If you decide to play the stock market, research the companies you want to invest in before getting started. Remember to diversify so if one stock fails, you do not lose all your money. Even if you do not want to put a lot of money into a high risk investment, playing the stock market with your older children is a great learning experience. Review the stocks daily, and decide whether to hold or to sell.
Other Resources
This page has been accessed 615 times. This page was last modified 14:37, 27 April 2007.
© 2006-2008 LoveToKnow Corp.
