How can you start a child or grandchild in investing?
Investments can be used for University costs, as down payment toward a first home, or to help start a business. Even more important, the child that learns to save and invest instead of spending every penny they get their hands on will become a self-sufficient contributing member of society. They are far more likely to enjoy financial security, get a good education and even become independently wealthy.
Will This Take Big Bucks?
Starting a child down the investment path does not necessarily mean shelling out thousands of dollars. You can get started for under $100, but of course the more invested wisely today the bigger the reward tomorrow.
Blue chip dividend paying stocks are one of the easiest and most educational methods of getting children into investing. You don't even need a brokerage account to get started as a shareholder with some of the world's biggest corporate names. Rather acquire a single share of a kid friendly stock like Disney, Mattel, Kellogg's, Dreamworks, Wrigley, Hershey or McDonald's and get it framed. Some of these company's shares can be had for under $150 including stock, transfer fees, and frame and other companies can be had for less then $100 all in.
Your child will appreciate seeing that they own something officially - especially part of the company that made their favorite toy, movie, breakfast cereals, or candy.
Now that your child is a registered shareholder (with a guardian named on the share too) sign up for the Dividend ReInvestment Program (DRIP) or similarly named shareholder program. Many of these programs allow the registered shareholders to acquire additional shares with cash payment, commission free, and if they allow fractional share ownership so you can just send in the amount you want to invest at the time.
Your child will receive financial statements and maybe newsletters about the company. You can visit the business or look at the products and discuss the business they are a part of. Also talk about the company when it is in the news or talk about competitors actions. Being connected as a shareholder with a company can all become a very educational exercise over a number of years-maybe a lifetime. For example, if you had bought shares in Tiffany's when they first came out in 1987, you would have enjoyed the four subsiquent stock splits and rise in value of the company over the long haul.
Government savings bonds are an old standby gift for children by grandparents. Compounding bonds can be timed to mature when the child goes to university or regular bonds can be bought for regular income. Government issued bonds come in low value denominations and are very safe. However, savings bonds have few related educational opportunities and, in some cases, can't be sold early. With the current extremely low-interest rate environment and the possibility of hyperinflation, bonds may not been the best choice for a child's nest egg. Locking in money at a low rate (achievable in a simple higher yield savings account) for 20 or 30 years does not seem like a very good plan. Of course if the bonds are marketable, they are not locked in, but if rates rise the bonds fall in value.
Gold and Silver are a great choice for getting a child into investments. Precious metals are shiny which makes them interesting even to babies. 1 ounce silver coins are readily available under $30 each (subject to price of silver) and a precious metal stash can be added to incrementally as the child receives birthday money or earns money doing chores.
Buy bullion as close to spot as possible and avoid the "collector" coins
There are a lot of education opportunities with precious metals. Kids can learn about how money works, all about inflation, uses of precious metals, why precious metals are valuable compared to other materials, and much more.
Best of all the child can touch and feel precious metals and choose what they want to buy for themselves at a coin shop. Precious metals are an investing experience that is hard to duplicate, and what kid does not like shiny stuff?
Registered Education Savings Plan
In Canada consider starting a RESP for the tax benefits. The government kicks in cash when you invest and all taxes are deferred. When the money is withdrawn the child is likely not earning much (they are in school) so they will not pay much, or hopefully any, income tax. Your investment adviser can help you with RESPs, the details of which are outside the scope of this article. RESP's are easy to set up but must be held through a financial institution acting as trustee to be recognized by the tax authorities.
While you can register real estate in the name of a minor, the minor can not transfer the real estate away until they reach the age of majority (without a big hassle). There are ways around this. The use of a simple family trust can allow a parent to hold property for a minor and transact with it. You are not likely to just buy a house for a child but you might consider buying a vacation lot for camping or investment. In some parts of the USA such lots are available for under $5000.
Another way to get a child started in real estate indirectly is to acquire shares in a REIT with an adult acting as the registered guardian on the REIT units.
So What Investments to Pick?
All investing comes with some risk - even if the only risk is that inflation will erode away purchasing power. A balanced, conservative investment strategy for children seems to be the best approach. They have the benefit of a long time horizon, so a buy and hold strategy would be recommended by most experts.