Buying stocks for kids has become a popular activity for those looking to give a child a birthday, graduation or holiday gift that can last a lifetime. In addition to the underlying value of the stock, purchasing stock for kids can serve as a teaching tool, providing first-hand experience in investing and the stock market.
Kids and Money
Children have a remarkable ability to absorb new information and tackle new learning challenges. Teaching a child how to manage money at an early age will not only get her on track to financial success, but it can also provide a head start on financial literacy. Topics such as saving and budgeting are a necessary part of teaching kids about money management, but the subject of investing warrants just as much attention. Getting a child involved in investments, such as through a gift of stock, is just one way to drive the topic home.
You can purchase stock for a child in various ways. Options include buying stock from an online brokerage firm, from your own broker or through direct purchase. Direct purchase is the least expensive option, allowing you to buy stock directly from the company and thus bypass brokerage fees. Each corporation has its own policy on selling stock directly and not all offer this service. Check the website or contact investor services to ascertain whether the company you are interested in sells stock directly to investors.
Taking a survey of your child’s interests is a good place to start when looking for a stock to purchase as a gift. Get the youngster interested in investing by choosing a stock that she is likely to follow. Contact the shareholder services department of each company and inquire about their direct purchase plans. For gifts, it’s always good to ask the company if they provide a certificate you can frame.
Even with a direct purchase transaction, you may incur nominal fees. Company policies differ on the minimum initial investment and fees associated with opening a shareholder account. Minors can't invest directly so you’ll have to set up an account for your child. A custodial account allows you to control the assets in the account until the child reaches the age of majority. These accounts are generally taxed at a reduced rate.