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How to Save Your Family's Future

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If you asked a group of parents about the best present to give at a baby shower, I'd imagine that a brokerage account wouldn't rank among the top responses. Yet if you really want to get your children or grandchildren started on the right foot, opening a brokerage account for them could be the best gift they ever receive.

Running to stay even
Lately, many people worry about the damage that the current economic turmoil may inflict on future generations. With trillions in spending on government programs to shore up the economy that have yet to bear fruit, the burden of repaying that debt may force our children and grandchildren to make the tough choices we've refused to make ourselves.

With those concerns in mind, the best remedy to protect your family is to get started on a savings program that will give your children an edge over their peers. Whether that money eventually goes toward a debt-free college education, a reasonable home, or even their retirement 60 or 70 years from now doesn't matter. What does matter is that your children will have choices they wouldn't otherwise have had.

A great time to start
As painful as the bear market has been for investors who already have a lot of their money in the stock market, it's now far easier for those still waiting to get into stocks to buy shares of good companies at great prices.

For instance, I often recommend using a stock portfolio for kids to serve two purposes: it should grow and provide income like any investment portfolio, but it should also serve as a tool to educate your kids about money and investments.

To bolster that sentiment, investing in stocks that your kids are familiar with can make it far easier for them to get and stay involved in their portfolios. By owning shares of companies whose products they use every day, kids really connect with the idea that they have a piece of a real company that serves them and millions like them.

The kid portfolio
To get a sense of just how much good an investment portfolio can do for your kids, let's take a look at a sample portfolio of seven companies that children everywhere know and understand:


1-Year Return

18-Year Average Annual Return

McDonald's (NYSE: MCD  )



Coca-Cola (NYSE: KO  )



Disney (NYSE: DIS  )



Nike (NYSE: NKE  )



Apple (Nasdaq: AAPL  )



Mattel (NYSE: MAT  )



Hasbro (NYSE: HAS  )



Source: Yahoo Finance.

Even if you only set aside a single $100 investment in each of these stocks, if they perform as well as they did over the past 18 years -- a period that includes two bear markets -- you'll have more than $3,600 to help your children reach their financial goals.

How to go forward
To open a brokerage account for children, you have a number of choices:

  • A custodial account lets you act as a fiduciary for your kids, investing their money for them while they're under the legal age of majority in your state (typically 18 or 21). After that, you're required to turn over funds in a custodial account directly to the child's control.
  • For education, alternatives include the Coverdell ESA and 529 college savings plans. The Coverdell acts like an IRA, in which you make after-tax contributions but then don't have to pay tax on the income produced as long as it goes toward allowed education expenses. A 529 account shares the same tax advantages, but typically you must choose from among a specific set of investments offered by the particular plan you choose.
  • Lastly, you can keep the account in your name. That way, you're under no legal obligation to turn over the funds to your kids at any particular age and can instead spend it on behalf of your kids or simply keep the money until your kids are ready to assume responsibility for their money.

With all you do for your kids, opening a brokerage account may seem like a minor step. But in the end, it could be the thing they most appreciate from you -- if you use the opportunity to give them the financial education they'll need to survive in the coming decades.

For more on getting your kids started with investing:

Another useful tool for teaching kids about investing is our Motley Fool Stock Advisor newsletter. Fool co-founders Tom and David Gardner offer advice in simple terms that kids and adults alike can understand and act on. See for yourself free with a 30-day trial.

Fool contributor Dan Caplinger has been putting money away for his daughter since she was born. He doesn't own shares of the companies mentioned in this article. Coca-Cola and Disney are Motley Fool Inside Value selections. Hasbro, Disney, and Apple are Motley Fool Stock Advisor selections. Try any of our Foolish newsletters today, free for 30 days. The Fool's disclosure policy is kid-tested and mother-approved.

Read/Post Comments (1) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 04, 2009, at 10:18 AM, catoismymotor wrote:


    Thank you for this. Last week I had just started to think on this subject. I have a young family an want to set them on the right path to financial independence.

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10/28/2016 2:13 PM
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