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How to Teach Kids About the Stock Market

Updated on October 20, 2015
DeborahDian profile image

Deborah is a mother and grandmother who loves to pass on tips to other parents and grandparents in her articles.

Your Child Will Love Owning Stock - It is A Great Experience for Them

If you start to teach your children about stocks when they are young, they will be able to read charts by the time they are teens!
If you start to teach your children about stocks when they are young, they will be able to read charts by the time they are teens! | Source

Get Your Kids Interested in Investing

My husband has been involved in the investment business for over 40 years and, once we had grandchildren, he wanted to help them have a better understanding of what he does. He also thought it would be nice for them to learn about the advantages of investing in the stock market.

A few years ago, we decided to purchase ten shares of Disney stock for each of our five grandchildren. Since we made that purchase, the stock has more than doubled. Our oldest granddaughter, who is in college, recently sold her stock in order to purchase a computer. Meanwhile, our other four grandchildren continue to proudly own their stock.

We also considered other companies that might interest our grandchildren, such as McDonalds and DreamWorks. However, since we live in Southern California near Disneyland, our grandchildren visit the theme park about once a year. We decided that they really feel connected to this company. Other companies can be an excellent choice, however. Your real goal is that they learn how the stock market works.

In addition to the stock appreciation that they experienced, they also felt pride in the fact that they owned a tiny portion of Disney. Once, when our grandkids were standing in a long line to get on Space Mountain, one of our son-in-laws jokingly told his children that they should thank everyone in line because they were increasing the value of their stock. Of course, they didn't really do it, but it did make them aware of the fact that a crowded theme park means greater stock values.

Teaching kids about how to handle money in the future is an important part of parenting.

How to Buy Stock for Kids

If you decide to purchase a child-friendly stock, like Disney, for your children, you can purchase this stock in a custodial account from any brokerage firm, including online brokerage firms or the firm that currently handles your investments. Make sure that you let them know that you want to open a custodial type of account under the Uniform Gifts to Minors Act. An adult needs to be the custodian until the child reaches adulthood (either age 18 or 21, depending on the state.)

Be aware that there are also some companies that will sell you one share of stock that comes with a colorful stock certificate in a frame. However, you will pay far more than the value of the stock for this fancy stock certificate and the frame, shipping, etc. Although you can do this if you wish, I suggest that you skip features like a frame, and buy more stock instead!

Use Stocks as a Learning Experience for Your Kids

Once your children own a stock, whether you decide on Disney or some other corporation, you can use the investment to help your children learn more about investing. Here are some things you can do:

Enroll The Stocks in a DRIP

A DRIP is a Dividend Reinvestment Plan. Your children or grandchildren will receive dividends from Disney on an annual basis and from some other corporations on a quarterly basis. One way to help them grow their investments is to reinvest the dividends in more shares of stock. The brokerage firm that handles their custodial account can arrange for the DRIP.

Watch for Stock Splits

Disney has had stock splits about every five to ten years, beginning in 1956. However, as of this writing in May, 2013, there has not been a stock split since June 19, 1998. When the next stock split comes, your children will be excited when the number of shares they own grows from ten to twenty or more!

Teach Your Kids to Read a Stock Chart

Understanding graphs is one skill that your children will have to learn for their math classes in school. This may seem dry and uninteresting when they are plotting random numbers in a math class. However, they are going to be much more interested in watching the chart for their stock. You can look up stock charts on Yahoo! Finance as well as other sites, including the website of the company that handles their account.

Teach Your Children to Read the Annual Reports

Of course, not everything in the annual report of a large, complex corporation will interest a child. However, the annual reports for Disney are often colorful, with lots of photos of new theme parks and other acquisitions. Show the reports to your children and let them thumb through them, even if all they do is look at the pictures. When they get older, they may want to read a few sections, but don't force them. It is enough if the reports just remind them that they own a tiny piece of everything that they are seeing in the report.

Information About Investing for Children

Another way to help your children understand more about investing is to purchase them a few books on investing and money management. These are two topics that are barely mentioned in America's high schools, yet stock values are important to nearly everyone.

When your children become adults, they may invest in a company 401k, buy a mutual fund for their IRA, or purchase individual stocks. In addition, if they work for a large corporation, the stock price of that corporation can play a significant role in identifying whether that company is successful or not.

Since the schools will not spend much time teaching your children about stocks and investing, it is important for parents to teach this subject to their children. Not only should you purchase stocks for them, you may also want to buy a few books to help them learn more.

More Information to Help Your Child Learn About the Stock Market

I'm A Shareholder Kit: The Basics About Stocks - For Kids/Teens
I'm A Shareholder Kit: The Basics About Stocks - For Kids/Teens

Once you purchase stocks for your kids, this shareholder kit will give them a better understanding of the terms and other information they need to know.

 

Share Your Opinion About Buying Stocks for Kids

Do you think parents and grandparents should buy stocks for the kids in their family?

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Investment Guides for Kids on eBay

In addition to Amazon, another source of investment books for kids is eBay. See what is currently available on that site.

What do you think about buying stock for your kids or grandkids?

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    • DeborahDian profile image
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      Deborah Carr 2 years ago from Orange County, California

      Thanks asereht1970. It is so important to teach your children about how to handle their money.

    • DeborahDian profile image
      Author

      Deborah Carr 2 years ago from Orange County, California

      Thanks asereht1970. It is so important to teach your children about how to handle their money.

    • DeborahDian profile image
      Author

      Deborah Carr 3 years ago from Orange County, California

      Yes, kids love to invest in the stock market. It makes them feel grown up and gets them interested in investing.

    • asereht1970 profile image

      asereht1970 3 years ago

      This is a good investment. Kids will surely love to own a stock from Disney. Great lens.

    • WriterJanis2 profile image

      WriterJanis2 3 years ago

      Being that I am a Disney fan, I think this is a good investment as Disney just seems to keep growing.

    • DeborahDian profile image
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      Deborah Carr 4 years ago from Orange County, California

      @digipham: You are absolutely right that, no matter what stock you are buying, it is important to analyze its investment potential first! Thanks for your comment.

    • profile image

      digipham 4 years ago

      Well, that is a good investment, but you should do some analysis before buying.

    • DeborahDian profile image
      Author

      Deborah Carr 4 years ago from Orange County, California

      @anonymous: You are absolutely right! When we bought the Disney stock for our grandkids, three of them were in elementary school, but two were already teenagers. All of them loved the stock!

    • profile image

      anonymous 4 years ago

      never too late to start saving and investing