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We all want the best for our children. We teach them proper manners, to treat others with respect, and to brush and floss their teeth. These are all necessary skills to survive and thrive as an adult… so is investing!
Investing is a vital life skill that we should be teaching our children, and the best way to learn is by doing.
Buying stocks for kids is extremely easy and gives them a huge headstart on learning valuable investing experience.
Reasons Why You Should Buy Stock for Kids
Here are some of the main reasons why stocks make great gifts for children:
- They have enough toys! My daughters' rooms are overflowing with stuffed animals, dolls, and hundreds of other toys. They don't need any more.
- Stock ownership helps teach children important concepts about investing, like dividends, stock splits, and the general up and down movement of prices.
- Stocks are unique gifts for children. I bet no one else gave Maddie an ownership stake in a company!
- Your gift could be worth a lot more in the future. A small gift of stock today could be worth a bundle down the road. (Don't you wish someone gave you stock in whatever company that has increased in value dramatically since you were a child?)
- Teaching them about investing is part of raising financial responsible children.
- Interest in stocks could spur a career in finance. It did with me! See my story below.
- We all have to learn eventually. Owning stock is an important money lesson that everyone should know. By getting started early you are giving them a big headstart.
- It's really easy to buy stock for children. Just open a custodial account with an online brokerage company, and then buy the company.
My Story: A Grandparent's Gift of Stock
When I was born, my grandfather bought stock for me. I didn't know it at the time (since I was a baby), but this gift would have a massive influence on my life.
He bought me 10 shares of a regional utility company, probably totaling $100 at the time.
At first, my stock didn't mean very much to me. A regional utility company is pretty boring. The most exciting thing about it was getting a piece of mail with my name on it.
He could have bought me stock in something more appealing, like Nintendo, or Wrigley's gum. I've heard that Wrigley's used to send a pack of gum with every stock statement. I definitely would have been interested in that!
However, as I grew older I started to notice some interesting trends. Almost every time I received a statement the account value grew! In addition to the value, because of reinvested dividends, the number of shares I owned grew as well. I found this fascinating.
As I watched the number of shares increase, the dividends were increasing, which then reinvested and bought more shares, which then led higher dividends… this just kept going on. I had inadvertently discovered compound interest!
Now, many years later, I credit my grandfather's gift of stock for giving me a headstart on my financial education and as the catalyst for my career in finance. I was recently quoted about it in an article for Nerd Wallet on how to gift stock to new grads.
I don't believe that everyone is made for a career in finance, or that a gift of stock will even spark interest, but if my grandfather's gift of a boring utility company could light a fire for me, who knows what buying a “really cool” stock could do for a child.
Best Stocks for Kids
While buying children stock in a utility company is a nice gift, there may be better options to ignite a child's interest in investing.
The best stock for a child is going to be one that captures their attention. Start with companies or products that they already know.
Here is a kid-friendly list of companies and their stock symbols that could make for excellent first stocks for kids.
Disclaimer: Please note that these are simply stock ideas and should not be considered recommendations. Buying stock has risks, including the loss of investment.
Video Game Stocks
Electronic Arts (EA)
Six Flags (SIX)
Social Media Stocks
Alphabet “Google” (GOOGL)
General Mills (GIS)
This is obviously not an exhaustive list of the best stocks for kids, but it is a good starting point. The most important part is that there is excitement about the company or product. The more passionate kids are, the higher likelihood that owing the stock will have a lasting impact.
Where to Buy Stocks for Children
To buy stocks for someone under 18 you need a custodial account. A custodial account can be opened even if you are not the child's parent. Grandparents, for example, can either open their own account with their grandchildren or could contribute to an account that the parent creates.
If you choose to open a custodial account, you will need some personal information of the child. Name, social security number, date of birth, and address are the most commonly required pieces of information.
The account can be opened at any online brokerage firm, like Fidelity, TD Ameritrade, Charles Schwab, E*Trade, or Stockpile.
While Stockpile is not as large as the other firms, it represents a great place to buy stock for children.
Some Benefits of Stockpile
- Start investing with just $5
- Buy fractional shares of 1,000+ stocks and ETFs
- Free sign up, $0.99 per trade
- No monthly fees or minimums
- Provides product and logo images that are easily recognizable and kid-friendly.
The Best Age to Buy Stock for Children
As soon as they are born!
My grandfather bought stock for me as a baby, and even though I wasn't aware at the time, it had an impact on my life.
Any age is the right age to introduce kids to investing!
It doesn't matter what age they are when the stock is first bought, but here are some ideas for when to start going over certain concepts.
Age 4-7: Focus on the link between products and the company they now own. For example, my daughters love My Little Pony. It's a powerful connection for them to understand that every dollar spent on MLP figures is income to the stock they own, Hasbro (HAS).
Age 8-12: This is the best age to begin to understand dividends. Seeing the impact of reinvested dividends can open their eyes to the power of compounding.
Age 13-17: Teenagers can research news surrounding the company they own and start to forecast how they think it will do in the future. This is a great time to introduce corporate accounting terms like earnings, profit and loss, and valuation.
You can teach children about investing at any age, but the best time to start is now.
Some Other Fun Education Ideas
- Hold a regular stock review every month, or every week if you are ambitious. Look to see how the stock price changed and discuss any dividends or stock news.
- Have a family competition! Every family member picks two stocks for three months. At the end of the quarter the highest value wins!
- Put a percentage (example 10%) of their spending into the stock of the company they spent money on. If they just bought $90 Nike shoes, buy $9 of Nike (NKE) stock. If they spend $50 on a new Mario video game, buy $5 of Nintendo (NTDOY).
- Challenge kids to find as many companies as they can that they interact within a day. See if they can get over 20. (Example: I woke up and had cereal (General Mills). Then I watched cartoons on our (Sony) TV, using cable (Comcast). I had a shower and used shampoo (Proctor & Gamble), and brushed my teeth (Colgate).). You get the idea.
Whatever method you choose. Have some fun with it.
Stock investing is a life skill. The earlier you buy stock for children the more comfortable and knowledgeable they will be. If you haven't done it yet, open a custodial account and buy stock for your kids now. For $5 you can give them a headstart on their investing life.