Drips and Investment Accounts for Kids

Have you ever thought about teaching your children how to invest in the stock market? From the time most kids are very young, they love to count their money. Once they own their first piggy bank, some children can spend hours stacking up all the pennies, nickels, dimes and quarters in their bank, and counting how many they have. After they reach school age, and they know how to count money in larger amounts, often children will begin to keep a running total of how much they have.

You may not be aware of it, but these children have already developed a very important milestone in their maturity. They have learned the value of deferred gratification. Rather than rushing to spend every dime they accumulate, they would rather watch their money grow. These children are ideal candidates for learning how to invest money in the stock market .... with mom and dad's help, of course!

If you begin slowly, allowing them to save or invest some of their money while keeping the rest of their cash at home where they can see it, your children will love having money in more than one form and location!

You can encourage them even more by adding a little extra money to help them start their stock accounts. My husband and I purchased 10 shares of Disney stock for each of our grandchildren at a time when we could purchase it for about $17 a share. It was their Christmas present one year. All of our grandchildren, except one, still have the investment and those ten shares have grown substantially over the past ten years.

The first step you will want to take in teaching financial literacy to your children is to open a savings account. Add a little money to what they already have. Do you have relatives who give your children money on their birthdays or other holidays? Put that money in the savings account, too.

In the United States, you will want to open the account under the Uniform Gifts to Minors Act. This is a joint account held by both a parent and a child. The child gets full control of the money once they turn 18, and the parent has control of it until then. Many banks and credit unions also have special accounts for children which are intended to encourage children to save their money in the bank. Frequently, these accounts have either no fees, or very few fees. In order to encourage savings in young children, banks, credit unions and similar financial institutions will sometime even give a small gift to a child who opens an account. Two of our grandkids received cute little duffel bags full of school supplies when they opened their accounts. In addition, your children will earn interest on their money. In this way, you will have the opportunity to explain the benefits of compound interest to your children, and they will have fun watching their money grow.

Whenever your child gets a bank statement, show it to him, and discuss how they might use the money in the future. While the idea of saving for college or a house may not interest some children, the idea of saving towards their first car could motivate them to keep the money in the account until they reach their teens.

In addition to savings accounts, another program which is available under the Uniform Gifts to Minors Act is an investment account. Your children will love the idea of owning stock, especially if you help them invest in a company which interests them. Many major corporations that cater to children, such as Disney and McDonalds, have special investment programs for kids. For example, when children own at least 10 shares of Disney stocks, the company will send out special mailings to the kids, including their own annual report.

Your children will feel very mature and grown-up when they own their own stocks, and it will change their attitude about doing business with those companies. They will begin to understand the benefit of visiting a busy McDonalds or seeing long lines at Disneyland, if they understand they actually earn money when those companies are successful!

Once your children own stock in a company, one way the value of the investment can grow is through a Dividend Reinvestment Plan. A DRIP, as these plans are called, allows the company dividends to be used to purchase more shares of the stock, without having to pay commissions. Over time, this means that the number of shares your child owns will increase.

Gradually, you child will learn that they can earn money several different ways when they invest. They can earn when their dividends are reinvested. They can earn when stock values go up. And, they can build up their accounts even more as they invest more money over the years. Before your know it, your child will be an enthusiastic investor!