How to Teach Kids About the Stock Market
Your Child Will Love Owning Stock - It is A Great Experience for Them
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
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?
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.