STOCKS FOR KIDS
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All the boxes have been opened, new toys examined and played with. With your child's birthday celebration waning, there's one more present to open. It's a nice check Aunt Fanny and Junior's already thinking about the new computer game he can buy. Kids certainly have lots of ideas when it comes to spending money, but how about something that doesn't involve a trip to Toys R Us? If I were 10 years old, I'd say "NOT," but there is a way to make investing money into an exciting and educational adventure for kids. It's as simple as buying your child a few shares of stock.
In fact, some folks are giving shares of stock to kids as presents these days. I recently read about a man who bought a single share of Disney stock for his new granddaughter; the framed certificate graces the wall of her nursery. "I wanted to give her something visible, to instill in her that she owns something, that people do invest," the man said. In order to get the most out of this experience, experts say it's important to do what this man did - select a stock that children can relate to.
There are, of course, dozens of companies that kids will recognize - McDonald's, PepsiCo, Mattel or Nike are just a few obvious possibilities. Have your child take part in the selection process, examing the price per share and researching how the stock has performed. If your child is a computer whiz, have him go on-line for the most up to date information. If more than one child is participating, let each choose his own stock. Then, make a game out of monitoring the stocks to see which does best. Try to figure out what caused the stock's value to increase or decrease. Finally, don't forget to make some plans for those dividend checks, when and if they come.
There are a few important details to be aware of here. A minor cannot legally own stock, but you can purchase it in a child's name by setting up a custodial account under the Uniform Gifts to Minors Act. The first $650 of income in the child's name is tax-free through the age of 14, and the next $650 in income is taxed at the child's rate of about 15 percent. Over that, income is taxed at the parent's rate, again until the child reaches 14.
Finally, let's look at some resources to help you set things up. Take Junior to the library to look for the Value Line Investment Survey, a common source of stock data and analysis. Look up phone numbers for the companies you're interested in, and ask for a copy of its annual report and its 10-K reports (required filings with the U.S. Securities and Exchange Commission). Look at the business section in the newspaper or pick up a financial magazine for more information. To keep expenses down, seek out one of those no-fee brokers, or ask you own broker how best to purchase the shares.