Buying Stocks for Kids Stockings
Odds are, a brokerage account isn’t on your kid’s wish list this year, said Kira Brecht in USNews.com, but the holidays “can be the perfect opportunity to give your child a gift of stock.” Financial educators say early exposure to investing can help kids build habits that set them up for success later in life. Parents can open a custodial account for their child easily enough through an online brokerage firm. Kids and parents can then track the stock together and discuss what makes its price go higher or lower. The idea isn’t so much to mint a tiny day trader, but to teach lessons about how the market works and “the power of investing over time.”
With banks no longer selling paper savings bonds, some entrepreneurs are inventing clever new ways to give investment gifts, said Susan Tompor in the Detroit Free Press. Startups like Stockpile and SparkGift sell gift cards for fractional shares in companies like Hershey, Nike, and Tesla, as well as popular index funds. (A $50 gift card for Apple stock, for example, would net the recipient a fraction of one share, since Apple is currently trading around $110.) Kids can redeem the stock gift online through an account set up by parents. SparkGift offers online e-cards, while Stockpile cards can be bought online and in stores like Kmart, Safeway, and Office Max. “Buying individual stocks may be fun, but it’s not the best longterm approach to investing,” said Liz Weston in CBSNews .com. So what’s a parent to do, knowing that it’s easier to get kids excited about a company they’ve heard of than an index fund full of unfamiliar names?
A smart approach is to “split the difference.” Put the bulk of the money in a low-cost index fund or exchange-traded fund, which is the best approach for most investors anyway, and then let the child pick a stock to buy. “It’s kind of like making sure they eat their vegetables before they have dessert.” A contribution to a 529 college savings plan also makes a great holiday gift, said Carolyn Bigda in the Chicago Tribune. New tools make it easy to give a one-time gift to these tax-advantaged plans, which work similarly to a 401(k) or IRA, but for college costs. Money can be sent electronically to some plans using a gift code. Don’t forget about retirement, said David Ning in USNews.com. Opening a Roth IRA for your child now will allow them to grow their retirement savings tax-free for years. “An extra decade or two of compounded returns may be the best financial gift any parents can give to their kid.”
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