Recently, on a lark, I asked my oldest son if we should buy shares of Deere & Co. (NYSE:DE). My reasoning at the time was that the stock was reasonably priced at 11 times earnings, paying a healthy 2% dividend, and managing modest growth exceedingly well.
Of course, I didn't think my six-year-old would grasp my babbling. But his response threw me. He reminded me that Deere tractors are at work at virtually all of the construction sites near our neighborhood, and there are plenty of those.
Raising a Fool?
That's when I realized: As we spoke he was, in his own way, developing an investment thesis for Deere in the tradition of master investor Peter Lynch. It was Lynch, after all, who counseled investors, in part, to buy what they know. My son knows John Deere tractors cold.
But, really, a six-year-old investor? Well, why not? I love my parents dearly; they're some of the finest people I know. But they didn't give me much of a money education. And I learned absolutely nothing about saving and investing in 18 years of formal education.
Instead, I irresponsibly plunged myself into debt early on in my adult life. Desperate times, and a chance encounter with the Fool, saved me from bankruptcy. And it's because I'm a Fool today that I'm able to remain confident as I dig myself out of debt yet again. Still, I'd prefer that my children not repeat my money mistakes.
Be direct
That's why I'd like to get them investing as soon as possible. How? Direct stock purchase plans and dividend reinvestment plans (a.k.a. Drips) are a great way to start.
We'll cover direct purchase plans first. These allow you to buy directly from the transfer agent that handles the stock inventory for the firm in which you're investing, but usually for less than a broker would charge. A minimum purchase -- rarely more than $250 -- is required to open the account. Many big-name stocks are available through direct purchase plans, including Dell (NASDAQ:DELL), Domino's Pizza (NYSE:DPZ), and Paychex (NASDAQ:PAYX).
Drips, on the other hand, are more complex. You must own a share of stock in the company before you can enroll with a transfer agent. And you'll need to have the share certificate registered in your name to open an account. This usually entails an application process that can take weeks.
Still, it's worth the effort. As Dr. Jeremy Siegel showed in his book The Future for Investors, the 100 highest-yielding dividend stocks in the S&P 500 outperformed the broader index by three percentage points annually from 1957 to 2003.
Better still, Drip plans have recently become easier to register for thanks to some enterprising services. Consider the Low Cost Investment Plan (scroll down) from the National Association of Investors Corp (NAIC). A brief enrollment form and a check for the amount you'll be investing plus a $7 per-stock fee will get you started. Well, that and membership in the club, which costs between $50 and $80.
But I still consider that to be cheap, particularly when it gives you easy access to Drip plans for Dow Chemical (NYSE:DOW), ExxonMobil (NYSE:XOM), and General Growth Properties (NYSE:GGP), among others.
Follow the money
Kids are capable of learning a lot about investing. So why not get them started? The rewards aren't just financial. For more family-friendly investment ideas, give our new personal finance service, Motley Fool GreenLight, a try for free. It's full of tips for getting you -- and your kids! -- started down the path to financial freedom.
Fool contributor Tim Beyers invites you to send him your best money tips. Tim didn't own shares in any of the companies mentioned in this story at the time of publication. Get a peek at everything he's invested in by checking his Fool profile. Dell is a Motley Fool Inside Value and Motley Fool Stock Advisor selection. Dow Chemical is a Motley Fool Income Investor pick. The Motley Fool's disclosure policy is as cute as a button.
