Financial education is one of the best gifts we can give our kids. One good idea is to give your child shares of a stock in a company that he or she can relate to – Kellogg or Dr. Pepper for example. A stockholder is an owner of the company. “Let’s buy something from your company,” is a phrase that will have meaning to kids as young as 6 or 7. Owning a stock is an investment, money set aside for future use, and it is very important to learn about this concept at an early age.
There are several ways to give stock to your child. You can open a discount brokerage account in the name of a minor, put money in the account, and buy your stock of choice. But the broker charges a commission to buy even one share of stock, and a $10 commission on a small dollar amount is not cost effective. You also could transfer shares you already own in your brokerage account to a new account for your child.
Right now I am working with a grandmother who is thinking about buying one stock for each of her two teenage grandchildren. She wants the kids to learn how to find out the stock price on line and then keep a monthly chart of the stock price. The kids will receive an annual report from the company which describes how the business is doing.
I have suggested that Grandma look at Dividend Reinvestment Plans, called DRIPs. Many companies have a program to reinvest dividends, and they make it possible to purchase small amounts of additional company shares or partial shares with no commission in amounts as little as $10. Some companies even let you buy their stock at a slight discount. Before you start reinvesting dividends you must own at least one share of the stock; some companies will let you buy the first share directly from them. But each Plan is different so you must do your homework to understand how the Plan works and if there are fees involved.
My advice is to discuss the concept of owning a stock with your child and have him or her pick half a dozen companies they can relate to. Then check to see if the company stock has dividends and if there is a DRIP with no or minimal fees.
DRIP is a good acronym because a small drip of savings over a long period will amount to a large pool of money.
Someone who knows about stocks and stock ownership at a young age is going to be better able to handle his financial future.