Take Stock in Your Kids

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April 15, 2016


You might be a master of the stock market, but are your kids? While most parents teach their kids the importance of saving money and might even help them open a bank account, they often fail to take the next step: educating them on how to build wealth through investing.

 

“Teaching children about investing and creating opportunities for them to put this knowledge into practice helps them take an important step toward their financial independence,” says Michelle Walker, Managing Director, Investments, Ascent Private Capital Management of U.S. Bank, and author of “The Basics of Investing: A Paper to Share With Your Children.” And the sooner you start, the better, she says.

 

“Starting early helps instill strong financial values in children while giving them more time to build

their own wealth,” says John Campbell, Vice President of Wealth Planning for The Private Client Reserve of U.S. Bank. Admittedly, it can be tough to convince kids to part with their money in the short-term so they can reap long-term benefits. “You need to find a way to make it resonate.”

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April 15, 2016


Take these steps to begin their financial education:

 

1. Show them the math. Start by explaining the concept of compounding – generating earnings on an asset’s reinvested earnings. Then, give an example: for instance, if they invest $15,000 when they turn 18, by the time they are 50 they will have $176,056 (at an average return of 8 percent compounded annually). On the other hand, if they wait until they are 35 to invest the same amount, it will be worth only $47,582 – almost a $130,000 difference. “That’s a message kids can understand,” Walker says.

 

2. Get their input. “If you want kids to be excited about investing, connect it to things they care about,” says David Campanella, Senior Vice President, Market Leader, Cleveland & Columbus, The Private Client Reserve. Start by talking about different investment sectors, like technology or social impact investing, and then ask your children to consider specific companies in those sectors. “It can make investing more relevant.”

3. Expose them to the stock market. Leave CNBC on in the mornings, talk to them about your own investment portfolio, and spend time online learning about investment strategies together. For younger children, sites like USMint.gov/kids and pbskids.org have games and information about money and investing.

 

Older children might enjoy opening a “virtual portfolio” on investopedia.com (where it’s called a “stock simulator”), where they can test their investment skills using fake money. Still, Campanella warns that virtual trading lacks the risk that comes with real-life investing: “If you want the true experience of investing, you have to put real money in the game,” he says.

 

4. Seed an account. Get children started by having them invest a small amount. Consider a Uniform Gifts to Minors account, in which the child owns the assets but the parent is the custodian until adulthood, or a joint brokerage account the parent shares with the child. “Start small to be sure they are interested, and make choices together,” Campanella says. 

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April 15, 2016


5. Find a balance. Ideally, you want your child to have a diversified portfolio that includes mutual funds over individual stocks to lessen their risk. “But diversified portfolios are not as much fun to think about,” Walker notes. To make it more engaging, letyour child choose individual stocks based on companies they think will be good investments, like their favorite video game producer or fast-food chain. Explain that owning shares in these companies means every time the business sells a product, profits are created for stockholders. “It makes it more exciting,” she says. And don’t worry if the choices don’t pan out. “Even if the stockloses money, it can be a great learning opportunity.”

It might seem like your kids are too young to concern themselves with investing, but Walker explains that engaging them in the topic as soon as possible gives them more than the opportunity to make a few extra dollars: “You are helping them learn financial skills that they will use for a lifetime.”

 

Diversification and asset allocation do not guarantee returns or protect against losses.  


Equity securities are subject to stock market fluctuations that occur in response to economic and business developments. 
Mutual fund investing involves risk and principal loss is possible. Investing in certain funds involves special risks, such as those related to investments in small- and mid-capitalization stocks, foreign, debt and high-yield securities and funds that focus their investments in a particular industry. Please refer to the fund prospectus for additional details pertaining to these risks.

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Categories:
Generational Wealth , Investments , Online Exclusive , Wealth Transfer