Creating a stock portfolio for your child can be an effective way to teach him about money management. Carefully planned, age-appropriate investments will take your little one beyond the Tooth Fairy and a weekly allowance toward a real world knowledge of financial planning. To get the most out of your child's money, set up a plan that appeals to youngsters. The fun of teaching your child about finance just might bring out the kid in you, too.
Stocks to Buy
Start by choosing stocks with which your child can identify. Explain that investors who purchase stock become shareholders with a real stake in the company's financial well-being. Select stocks that appeal to his hobbies. Toy manufacturers, popular restaurants and tech companies are all good choices. Try investing in companies that produce real products instead of intangible services. If your child can see it, touch it and hold it, he is more likely to develop an interest in managing his portfolio.
When you're ready to buy, you must purchase the stocks on your child's behalf. Because minors can't open brokerage accounts on their own, the parent handles the purchase. Stocks for children are transferred into a custodial account under either the Uniform Transfers to Minors Act or the Uniform Gifts to Minors Act. The Uniform Transfers to Minors Act has been adopted in every state except Vermont and South Carolina. As the account custodian, you manage your child's money until he reaches the age of majority in your state.
Play at Investing
Children learn through play. Experiment with a mock portfolio that lets him see how investment decisions affect his bottom line. The stock market isn't all fun and games, though -- even for junior investors. Once your child understands the fundamentals of the market, let him try his hand at buying and selling. Explain that stocks are a long-term investment and that lasting success requires patience. Prepare him to experience both gains and losses.
Teach your child to keep track of his portfolio's performance by showing him how to monitor stock prices in the paper or online. Keep his attention by starting out with attainable goals. If he wants the latest, greatest bicycle, wait for a stock to perform well and use the profit to buy his new ride. Rewarding his interest in money management will build a solid foundation for future financial responsibility.
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