|My Kid The Investor
Should You Encourage Your Children
To Learn About Investing? Actually Do It?
By Paul Barr
Look at it this way:
The sooner your children learn the difference between a stock and a bond, the more likely they won't be sponging off you after high school and college. And with the current status of Social Security in question, do-it-yourself investing is likely to become more of a requirement for your kids than an option. Plus learning about investing can be an invaluable, and fun, window into how the world works. And we're all for education, right?
Possibly you're hesitant to get your kids interested in the markets because you're not exactly an investing wizard yourself. That shouldn't stop you. The Web makes it a breeze for anyone-including dads-to get their feet wet in the market without losing the farm.
So, where can you and your kids begin? Online investment games are a simple but effective way to get the video-friendly generation more familiar with the markets. Don't point your kids to entertainment-oriented sites like the Hollywood Stock Exchange (www.hsx.com), which are merely excuses to show online ads to the participants. Instead focus on sites that can teach young people something about investing and hold your interest.
FleetKids (www.fleetkids.com) and Kids Can Save, a Canadian site, (www.kidscansave.gc.ca) are two sites that give younger children-those still celebrating single-digit birthdays- a fun way to learn about the market. The Buy Lo, Sell Hi game at FleetKids is easy and basic, but based on real-world situations. The benefits of the Kids Can Save site are less apparent, because the market concepts are buried in the made-up terms used by the creators.
One of the best games for older children is found at MainXChange (www.mainxchange.com), which does a great job of replicating the online investing experience. You buy and sell stocks much as you would in the real world, with theoretical commissions getting charged, and research available on the site. Trades are executed during market hours, a nice touch. There are even message boards, which are no less naive or useful than what you can find on many of the adult-focused investment message boards.
If games are a good way to get started, eventually you'll want your kids to take the next step of actually saving and investing. A recently published book and its companion Web site called TeenVestor (www.teenvestor.com) can give you and your kids a framework for real-life investing. The basic idea is to teach your kids how to evaluate companies and invest in them without taking on a lot of risk.
Even with skills they can pick up in TeenVestor, you'll still want to keep yourself involved in your child's investment activity. You may have heard about the 15-year-old investor who recently got nailed by the Securities and Exchange Commission for allegedly posting false messages about stocks he owned. That kind of situations is highly unusual, assures Emmanuel Modu, coauthor of TeenVestor. Still, why be the dad whose kid makes the evening news?
Modu advocates a hands-on approach to prevent those rare mishaps. He also suggests that parents give kids an incentive for investing. If parents match their children's allowance with the understanding that they have to invest it, that's usually enough to get them involved, Modu says.
The online revolution has made it easier for kids to buy stocks directly in small amounts. New brokerages like BuyandHold.com (www.buyandhold.com) and Sharebuilder (www.sharebuilder.com) give small-fry investors the ability to buy stocks in as little as $20 increments, letting you purchase partial shares of a company. That way, high-priced stocks remain within reach of not-so-rich investors. Commissions are low-in the $2 to $3 range-but of course you won't get as much service as a higher cost broker offers.
Modu also says that teens are most likely to remain interested in the markets if they invest in companies related to their hobbies or personal interests. Sports lovers might take a look at Nike, while movie and music lovers can check out Time Warner. They can experiment as well. A fun task would be tracking down companies that sell or manufacture the Razor-style scooters that are found on practically every street corner these days.
Be aware that kids can't own stock directly without someone to act as a custodian. BuyandHold can help you with that. There are tax issues as well, but typically they won't kick in until your child has at least $700 in investment income, meaning interest, dividends, and capital gains, which are the gains from selling shares. TeenVestor has a lot of information in dealing with this as well.
As your children get more advanced in their trading, the TeenVestor book can help them move beyond buying stocks of companies they know. They can learn the basics of financial reporting and investment analysis, in an easy-to-understand format. They can also learn a lot at a site run by the big brokerage firm Smith Barney (www.smithbarney.com/yin). Smith Barney even held a summer camp this year designed especially for girls in sixth grade and older.
Maybe all of this sounds like it might be more than your children are ready for at this stage of their lives. Then why not let them do what millions of grownup investors do? Invest through a mutual fund. There are two funds designed specifically with kids in mind. The SteinRoe Young Investor fund invests in stocks picked in part with the goal of keeping kids interested, and has a few extras on its Web site as well (www.younginvestor.com). The USAA First Start Growth Fund takes a similar approach, with both earning four star ratings from fund expert Morningstar (www.morningstar.com). A drawback to both, though, is that the minimum to invest is higher than at BuyandHold.com. Nevertheless, the funds offer low-maintenance alternatives to owning actual shares that can also teach kids a bit about the markets along the way.
Paul Barr is Senior Editor of Online Investor magazine (www.onlineinvestor.com).
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