Are you convinced that your kids should start investing? Or that you should be investing for them?
Or maybe you're considering quietly parking some money in a few stocks or a mutual fund and then forgetting about it. Think again. You can use this opportunity to help your kids learn about investing and the stock market.
Can you really get your kids interested in this stuff? You bet. Most kids are interested in money and in how they can position themselves to get more of it. That serves as a good initial motivation, and once they get their feet wet, they're quite likely to discover that they enjoy it. But before 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, etc. Look at companies your kids know, such as Disney (NYSE: DIS ) , McDonald's (NYSE: MCD ) , Coca-Cola (NYSE: KO ) , and Abercrombie & Fitch (NYSE: ANF ) , for example. 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. 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 the 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? (Hint: Here's one way to figure the percentage. If the stock went from $50 to $60 per share, take 60 and divide by 50. You'll get 1.20. Subtract 1 (always 1) and you get 0.20. Multiply by 100 and you get 20. The answer is 20%.) 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 can 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. There's history, too, as they examine how venerable companies like AT&T (NYSE: T ) or Ford (NYSE: F ) got to where they are now. Science? Sure -- knowing or learning a little science is important when you try to understand what some of today's technology and health care companies are doing. English? Well, there's a bit of reading involved in researching stocks, and 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 some shares. Likewise, your child(ren) might also want to begin. How can a young person actually do so? There are a number of ways. Of course, you can open a joint brokerage account, with you acting as custodian, but you don't have to go this far. You can informally "sell" some of your own shares to your child. For example, if you're about to buy 100 shares of ExxonMobil (NYSE: XOM ) and your child wants to buy a share or two herself, you can just place the order together -- and order 101 or 102 shares through your broker. You don't have to buy round numbers of shares -- "odd lots" are okay. If you do these things, you'll want to keep a good record of which shares belong to whom. Once your child turns 18, she can open her own account at a brokerage and you can transfer her shares to it.
There's a lot more to investing, of course, and a lot more that you can do with kids to explore the stock market together. The learning process should prove rewarding -- and fun -- to both parent and child alike.
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