Teaching Kids How to Invest

It might be too late to get your kids into that prestigious kindergarten, but you can still give them a great edge in life by introducing them to investing when they're young. With time on their side, they're positioned to reap the greatest benefit from the magic of compounded growth.

Before plunking actual money into stocks, though, play and experiment together. A few fun suggestions follow.

Build a mock portfolio
Have your kids make a list of companies that interest them. At home, in their classrooms, at the mall, and on TV, they'll find ideas such as Time Warner (NYSE: TWX  ) , Nike (NYSE: NKE  ) , Gap (NYSE: GPS  ) , Disney (NYSE: DIS  ) , Ford (NYSE: F  ) , Coca-Cola (NYSE: KO  ) , PepsiCo (NYSE: PEP  ) , Abercrombie & Fitch (NYSE: ANF  ) , Dell (Nasdaq: DELL  ) , AppleComputer (Nasdaq: AAPL  ) , Starbucks (Nasdaq: SBUX  ) , Microsoft (Nasdaq: MSFT  ) , Mattel (NYSE: MAT  ) , Hasbro (NYSE: HAS  ) , McDonald's (NYSE: MCD  ) , Wal-Mart (NYSE: WMT  ) , ExxonMobil (NYSE: XOM  ) , General Electric (NYSE: GE  ) , and more.

Have them list five to 20 companies on a sheet of paper, with ticker symbols, current stock prices, and today's date. Every day or week, have them record the latest prices. Calculate the gains or losses regularly. Such short-term stock price movements aren't terribly meaningful, but they can help a child understand how the market works. (You can create an online portfolio to make tracking the stocks easier at our Quotes & Data area.)

Follow companies together
Scan newspapers and magazines for stories about the businesses. If McDonald's is promoting 55-cent burgers, watch to see if this will be a good move that brings in more sales or a bad one that will decrease total profits. Discuss how news affects stock prices.

Help your child invest money
You can open a joint brokerage account, with you acting as custodian. Or informally "sell" some of your own shares to your child. If you own some shares of PepsiCo, for example, you can "sell" two shares to your child at its current price. If you're about to buy 100 shares of ExxonMobil and your child wants to buy a share or two herself, you can buy 101 or 102 shares. (Yes, really. You don't have to buy in "round lots" of 100.) Once your child turns 18, she can open her own brokerage account, and you can transfer her shares into it.

No time like the present
Get your kids started learning about investing today, and they might end up helping pay for their own college tuition. Appreciating its dollar value might inspire them to read a few more books and attend a few less all-night parties in their freshman year, too!

To get your kids interested in saving and investing their money (and perhaps to ensure that you'll be treated to a first-class nursing home one day), invite them to drop by our special online area for teens. Also, consider giving them a copy of The Motley Fool Investment Guide for Teens, by David Gardner, Tom Gardner, and Selena Maranjian.

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  • Report this Comment On October 30, 2008, at 9:36 AM, andys2i wrote:

    This is a great post, just what I was looking for. One more point to add from a recent post I wrote on this topic ( ):

    Reward them. Nothing like greed for a motivator. Tell them that for ever $100 of imaginary money they make you will give them $1 of real money (up to $100 of real money). Don't penalize them for losses - its part of the learning experience. Also as they improve and get older, consider opening a joint discount online trading account so that they can slowly apply the lessons they learnt in the real investing world.

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