Investing for Kids
It's never too early to start learning how to invest and handle money, and the habits your kids develop now can lead them to financial responsibility and even financial independence. Whether they are putting pennies in a piggy bank or investing in the stock market, your child can learn the ins and outs of savings, compound returns, long-term gains, budgeting, and handling money even while quite young. Whether you have them put a percentage of their allowance in a savings account or encourage them to invest in an education IRA, you are giving them a gift of habits that can last a lifetime.
Many banks and credit unions have special accounts for children and teens. Help your child open an account and make sure they know how to make a deposit, read the statement to see how much they've earned, and make withdrawals. Teen accounts often include checking accounts and debit cards that will help your older child learn important money skills before he leaves home.
Most parents give their kids an allowance. This can be "just because" as part of the child's due as part of the family, or can be tied to chores. Some kids get some money "just because" but have the opportunity to earn more by taking on odd jobs around the house. Encourage your child to invest a portion of every allowance payment. You can sweeten the pot by offering matching funds if they save for a big-ticket item like a car or a special vacation.
When your child is old enough to understand, you can take them to visit a stock broker and learn about investing in the market. Explain about risk, long- and short- term investments, and teach them to read the stock market page. Then suggest they invest in something that interests them. If your child is big on video games, buying some shares in Sony or Nintendo may be a great motivator. If your kid is into the environment or social issues, help him explore socially responsible investing. To avoid high risk, consider having your child buy some mutual funds. Whatever you choose let your child help choose the stock based on his interests. Investing in blue chips won't mean much to a child who could care less. A fund that supports the child's favorite cause or a stock in a product they believe in may teach them a lot more even if returns aren't as good.
Open an education IRA for your child and have her put a percentage of her money into savings for education. Again, matching funds may be a great way to save for college and give her the satisfaction of knowing she's helping to pay her own way.
Early on, help your child establish a budget. If he likes to buy his lunch at school, you might have him use part of his allowance for this. He may quickly find that that homemade lunch looks pretty good if he has to spend his own money to buy that slice of pizza.
