Make Your Kid the Next Warren Buffett

If you want to kickstart your kids' interest in investing, quietly parking some money in the market on their behalf just won't do the trick. Fortunately, there are lots of easy ways to help your kids learn about the stock market.

Most kids are interested in money -- namely, how they can get more of it. That serves as a good initial motivation to teach them about investing. Once they get their feet wet, they might just realize that they enjoy the world of finance.

Still, before you start plunking your kids' allowance into stocks, it's a very good idea to play and experiment with investing. Here are some activities you and your kids can do together.

Build a mock portfolio
Have your kids make a list of the companies that interest them most. They can get ideas by looking in their closets, in their classrooms, in the mall, on TV, or any number of other places. Search for companies your kids know, such as Disney (NYSE: DIS  ) , McDonald's (NYSE: MCD  ) , Coca-Cola (NYSE: KO  ) , or Abercrombie & Fitch (NYSE: ANF  ) ,. Write down the names of 10 to 20 interesting companies, then record the current stock price of each.

Every day, week, or month, you can check the prices together, see how the stocks are doing, and record the latest prices. (Consider setting up your mock portfolio in Motley Fool CAPS, which will automatically track your picks against the market's returns.) Foolish investors focus on long-term performance, so day-to-day or month-to-month stock price movements aren't terribly important to us, but it can still be very interesting to see how stock prices move.

Follow your stocks together
Along with updating your portfolio's prices periodically, you can scan newspapers, magazines, Fool.com, and other websites for stories about your companies. Is McDonald's promoting $0.75 burgers? Will this help the company by bringing in more sales, or will it hurt by decreasing the total profit? And how did the stock market react when it heard of this announcement? Did the stock go up or down?

Do some math as you follow your stocks
Pretend that you bought 10 shares of a company's stock. How much did it cost you? (You can include broker commission costs, if you want to be more precise.) What are the shares worth now, a few months later? How much money have you made? What return percentage is that? Following stocks is great way to develop basic math skills.

Consider school subjects other than math as you explore stocks
Investing can relate to most subjects in school, and give kids a bit of a new perspective on their studies. There's obviously math involved, since they multiply share prices by how many shares they want to buy, and perform other calculations with numbers from annual reports.

But stocks can also teach history, as your kids examine how venerable companies like AT&T (NYSE: T  ) , General Electric (NYSE: GE  ) , and Ford (NYSE: F  ) got to where they are now. (Our Foolsaurus has profiles and brief histories for many of these companies.) Science can also come in handy when researching today's technology and health-care companies. As for English, aside from the reading involved in research, it's always a good idea to write out exactly why you are buying a particular stock, and why the company seems so promising.

Start actually investing
Once you've become comfortable with the idea of investing in stocks, it's time to consider buying shares. Why not include your offspring in the process? You can open a joint brokerage account, acting as its custodian, but you don't have to go that far. If you're about to buy 100 shares of a stock, and your child wants to buy a share or two him- or herself, you can just place the order together, adding their shares to your own. Just keep a good record of which shares belong to whom. Once your child turns 18, she or he can open a brokerage account, to which you can transfer the shares.

We've just scratched the surface of all the ways you and your kids can explore the stock market together. Even if your child doesn't end up as the next Oracle of Omaha, the learning process should prove rewarding and fun for parents and kids alike.

If it's not your child, who might truly become the next Warren Buffett? Chuck Saletta has a few ideas.

This article was originally published on Feb. 5, 2007. It has been updated by Dan Caplinger, who owns shares of General Electric. Walt Disney and Coca-Cola are Motley Fool Inside Value recommendations. Walt Disney and Ford are Motley Fool Stock Advisor picks. Coca-Cola is a Motley Fool Income Investor recommendation. The Fool has established a bear put spread position on Abercrombie & Fitch. Try any of our Foolish newsletter services free for 30 days. The Fool has a disclosure policy.


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