Buying stocks and bonds for children can lay the groundwork for a solid financial future, and it’s also a good way to teach children the practice of saving money. By introducing children to investing early, you give the acquired assets time to appreciate. The money invested in stocks and bonds for children can grow significantly by the time it is needed for such things as college or a first home.
1. Establish a custodial account for your child with a brokerage house if you intend to purchase stocks. Contacting a broker, either in person or online, and fill out the appropriate paperwork. Minors are not allowed to own stocks, but stocks may be held in a custodial account in the minor’s name. A responsible adult must be the owner of the custodial account and is charged with managing the account for the child’s benefit. The account may be transferred to the child when she turns 18.
2. Set up a minor account through TreasuryDirect to hold bonds for a child. This account must be linked to an adult’s account until the child turns 18, at which time he can establish his own account. A minor account is not required for the purchase of savings bonds.
3. Get your child involved in choosing the stocks. Children are typically much more interested in learning about the stock market if they feel a connection. Companies such as Disney, Coca Cola and Mattel are often recommended for children because kids recognize these companies or their products.
4. Purchase stocks or bonds for your child and place them in the child’s name. They must also have the name of the responsible adult, but they can show the child as an owner.
5. Give your child a physical stock certificate, to provide her with tangible evidence that she owns stock. Although most stocks are handled electronically, you can request the issuance of a certificate. Frame this and hang it in the child’s room.
6. Buy savings bonds that show the child as the owner. You may buy these at any financial institution and have them mailed to you or directly to the child. Since you are bypassing the TreasuryDirect system, these can be placed in the child’s name. You will need the child’s Social Security number for the transaction.
- Receiving stock certificates or paper copies of bonds can take several weeks, so plan ahead. In some cases it may take nearly two months for you to receive the item. Allow plenty of time if you are planning to give it to the child for a birthday or other special occasion.
- Large purchases of stocks or bonds can create tax liability, either for the minor or for the parents. Consult a tax adviser if you plan to make a large purchase for a child other than your own.
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