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Investment and Money Management for Kids

By Edited Jul 6, 2014 4 5

Money Making Ideas for Kids

Teach Your Children to Save and Invest

Just like most adults, kids love money.  From the time they are little and start to collect those first coins in their piggy banks, until they are teens and get their first jobs, they love to have money, earn money and spend money.  Although many parents are good about teaching their children to handle cash, sometimes they forget to teach their children about banking, investment options and other money management skills for kids.  This information is as important for our children to learn as knowing how to brush their teeth or dress themselves.  What are some steps parents can take to help their children learn to manage their money?


 Savings Plans for Kids

 Do you ever have relatives that send money to your children for birthdays and other holidays?  Do your kids ever accumulate a lot of cash in their piggy banks, and you worry that some of it could be lost or stolen?  You can open a savings account for your children at any age, even when they are babies.  In most states in the United States, there is a special type of account that your can open for young children under the Uniform Gifts to Minors Act.  This is a type of joint bank account held by both the parent and the child.  It allows a child to have money set aside for their future, and provides some tax benefits to the parents, as well.  However, the child will not have unlimited access to the account until they are 18.  Many banks and credit unions offer these special accounts for kids, with either no fees or very few fees.  These accounts will also pay your kids a little interest on their savings.  Your children will love the idea of earning money just by saving money.  This is a great opportunity to explain compound interest to your children, as well.   

If you open a savings account for your kids, be sure to show them the statements, discuss the interest with them, and help them understand how the money grows.  Discuss long term options for their money, such as saving for their first car.  Many kids will have difficulty thinking about saving for the down-payment on a house, or some other adult desire.  However, the idea of saving towards their first car, or a similar teen desire, is something that can motivate even most elementary age children.  Meanwhile, they are learning important financial skills, such as deferred gratification.

You may also want to teach your teens how to save their money in order to accumulate wealth.  If so, I highly recommend this book:  "The Motley Fool Investment Guide for Teens: 8 Steps to Having More Money Than Your Parents Ever Dreamed Of."  Kids love this book and it is very informative.

Investment Options for Children

If your child accumulates a large amount of money in their savings account, or is given a large cash gift either from you or a relative, you may also want to consider expanding their horizons by introducing them to some investment options.  Children love the idea of owning stock.  This is also great preparation for their first 401K, profit sharing or other retirement plan when they get their first real job.  Your goal is to help them understand how stocks are different from the savings at a bank, how it can be a wise strategy to have some of their money in both savings and the stock market, and how these two financial strategies can help them build their assets.  Yes, these are the actual terms you should use, too.  It makes kids feel very grown up when adults talk to them about money, using terms like financial strategies and building assets.

 One thing that children will need to be taught is that stocks do not always go up in value every month.  Sometimes, in fact, their investment may even be worth less than they originally paid for it.  However, if you choose to purchase a major, blue chip stock for your child, their investment will probably grow larger over time. 

 Some corporations have special stock accounts that are designed to help kids learn about investing.  We purchased 10 shares of Disney stock for each of our grandkids.  At the time we purchased it, it cost us less than if we had bought a new MP3 player for each of the grandkids; however, the advantages of owning Disney stock will last much longer.  Our grandkids now receive special stock reports from Disney, telling them about how the company is doing.  In addition, when we take our grandkids to Disneyland, they actually feel a little pride that they are stockholders!  Other companies, such as McDonalds, also have kid friendly stock programs.

 DRIP Accounts for Kids

 When you set up a stock account for your children or grandchildren, make sure you set it up with a DRIP (Dividend Reinvestment Plan).  Under this plan, any dividends paid by the company are reinvested into purchasing more shares of the stock.  Parents and grandparents can set these accounts up through the stockbroker they used when they purchased the stock.  The Dividend Reinvestment Plan can also be used to purchase additional shares of the stock, either by contributing money on a regular monthly basis, or on for special occasions such as birthdays.  Either way, it will be exciting for your children and grandchildren to watch the number of shares they own grow.

Financial Planning for Children

Include your children in other financial planning that you do that will affect them.  For example, do you have a college savings plan for your children?  Have you made other provisions for their future? Kids are interested in these conversations, as long as you do not overwhelm them with details.  Most of all, keep it fun while being informative.  They will learn that planning for their future is interesting and exciting!

 If you are interested in reading more about helping your children learn about money, you may also want to read some of the following articles:

 Financial Literacy for Kids

Financial Advice for College Students

Skills for High School Success

How to Enjoy Middle School Success

Summer Activities to do with Your Kids

An Excellent Guide to Investing for Teens

The Motley Fool Investment Guide for Teens: 8 Steps to Having More Money Than Your Parents Ever Dreamed Of
Amazon Price: Buy Now
(price as of Jul 6, 2014)
Help your children learn that they can become successful investors!


Feb 22, 2011 3:08pm
Great tips here. We included our kids in bigger financial decisions (age appropriate of course) so they could understand money better. They are now grown adults with good money skills. Great article!
Feb 23, 2011 12:56am
What a great article Deborah-Diane, it's so important to teach children the value of money at an early age and this hits the mark!
Feb 23, 2011 8:42am
Excellent advice to all parents and grandparents.
Feb 23, 2011 1:58pm
Thank all of you for your comments. I believe that teaching kids at an early age about finances, will help them feel more capable as adults!
Feb 23, 2011 9:00pm
All parents should read this as too many kids these days think money just appears or grows on trees. They need to save up for things they want and learn just how hard it is to find those extra dollars. It doesnt hurt for them to have to earn their pocket money either.
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