This Is the Best Gift You Can Give Your Kids

One of the best things you can do for a child is to get them interested in investing early in their lives. Here are a few tips on how to do it...

Matthew Frankel, CFP
Matthew Frankel, CFP
Apr 12, 2014 at 11:45AM

Has your son or daughter been bugging you for the new iPad? Maybe you should take your money and buy them a share of Apple (NASDAQ:AAPL) instead! The sooner you introduce kids to investing, the sooner they can develop responsible financial planning skills to use for the rest of their lives. But how do you start? How do you get your kids interested in what they might think of as a boring topic? Here are some quick tips for introducing your children to the exciting and rewarding world of investing.

Source: BlairSnow

Why it's so important
According to a recent survey conducted by T. Rowe Price, only 18% of kids think investing well is important to their financial success later in life. Very close to this is the percentage of parents (22%) who have bought stock for their children for the purpose of teaching them about investing.

Additionally, a lot of kids have misconceptions about the stock market. Only about half of the kids surveyed knew the goal of investing in stocks is to earn money over a long period of time. Almost 30% don't know what the stock market is, and 14% think the purpose of investing is to get rich fast.

The main reason it is so important for parents to teach their children about investing is because it's almost certain no one else is going to do it. In one of the most shocking statistics in the survey, only 12% of kids reported they had learned what they know about investing in school!

Source: 401(k) 2012

Finally, the best reason to start early is because time is the best investment weapon you have at your disposal, and your kid's timeframe is enormous. Do you realize that a $1,000 investment averaging 10% annual returns for 50 years would be worth more than $106,000? Getting your kids started early can do wonders for their financial security later in life.

How to get started
You don't need to spend a lot of money to start your kids on the right track. One of the best ways to start is to open an account and buy one share of one company. Make a list of stocks you think make good investments, and you feel your child will be interested in. You'll be surprised how "cool" they think it is to own a piece of a company that makes some of their favorite products.

Good (and bad) stocks for kids
There are plenty of companies kids will find interesting and are solid investments and are excellent to learn from, so just to name a few, here are some of my favorites in no particular order and why I've included them.

1.)    Walt Disney (NYSE:DIS) – Kids will love this for obvious reasons, and it's a diverse company which will be around for years to come. Disney has operations in theme parks, television, movies, and more. In the interest of keeping it fun, your son or daughter will love telling their friends about how they own a piece of Disney World!

2.)    Apple – Teenagers will especially love this. The biggest downside to Apple is how even one share is expensive, but the company pays a good dividend and trades at a very attractive valuation. Apple is an especially good company to learn from, as it is very reactive to things like new product announcements and holiday sales figures.

3.)    McDonald's (NYSE:MCD) – Not only is McDonalds a favorite among children, but it is an excellent example of how companies evolve with changing times. McDonalds has an excellent international business and its menu has adapted to the "healthier" demands of the public.

This is by no means an exhaustive list, and represents just some of the best companies kids relate to very well. Other names such as Hershey, Coca-Cola, Yum! Brands, Nike, and more are very good choices kids can relate to.

Stay involved and keep it fun
Don't just buy stocks for your kids and forget about it. It would defeat the purpose here. Sure, the portfolio will most likely grow over time, but the whole point is to get your kids interested and involved enough to motivate them to continue to invest on their own for the rest of their lives. Check the portfolio and discuss what your stocks are doing on a regular basis, and make it a family activity.

Whatever you do, keep your kids involved in the process and make it fun. Investing certainly can be boring, but it definitely doesn't have to be. And, by the way, your kid is probably still going to want the new iPad!