Give Your Child the Gift of Stocks

Winning a late-night Hatchimal bidding war or driving across the state to pick up the last PlayStation gaming console in the region will certainly score parents points with the little ones this holiday season. But for a present with the potential to keep a child engaged well into adulthood, consider the gift of stocks.

You don’t need be a master investor to pick the right stock. Buying shares in a publicly traded company is less about the stock’s return than getting the young’uns engaged in the art of saving and investing at an early age. And if the stock happens to be a winner, experiencing the magic of compound interest firsthand will be an added bonus.

Here are some other reasons why stocks can make the perfect gift for kids:

Stocks can be tailored to all ages and interests: Kid-related investment ideas are everywhere. From breakfast to bedtime, children are exposed to products and services from publicly traded companies. Who makes their favorite cereal, snack or special-occasions-only fast food? Which brands are behind their most beloved toy, gadget, sneaker or sweatshirt? Explain that owning a share of that company’s stock means they are not just customers — it makes them part owners of the business and comes with show-and-tell bragging rights.

You can buy them individually wrapped or in thematic bundles: Making a gift of a share (or more!) of a single company’s stock is great for a child who’s enamored with a particular product or brand. For children who are more broadly interested in a particular field (e.g., technology or medicine) or cause (the environment or social responsibility), a good option is to invest in a sector-specific mutual fund or exchange-traded fund. Each share of a fund or ETF buys part ownership in dozens of publicly traded companies that are chosen for their adherence to specific criteria or an investing philosophy.

Getting started is easy: One of the simplest ways to get children started with stocks (and to give them a true sense of ownership) is to set up a custodial brokerage account in their name and seed it with some starter stocks or shares transferred from your brokerage account. You’ll need their Social Security number and a grown-up to name as the custodian. Adult supervision is required to manage the account until the child reaches the age of majority (between 18 and 21, depending on the state).

Most major discount brokerage firms offer custodial accounts, including some with better terms than their regular accounts. Look for a firm with $0 minimum balance requirement, reasonable commissions and no extra account management fees (or one that waives them on custodial accounts). Alternatively, an informal option is to purchase and hold shares in your own brokerage account to transfer to junior in the future.

You can bond over the ongoing activity of investing for years: Make a standing date to get together for regular shareholder meetings. At first, you might simply track performance and ogle new products. As your child grows, so will her interest in her portfolio, and she’ll start to get the hang of how to invest in stocks. Don’t be surprised if you begin to bond over earnings reports, annual letters to shareholders and conducting on-the-ground research. The best way to keep your budding Warren or Wendy Buffett interested is to let him or her drive some investment decisions and pick companies for the portfolio. Encourage your children to add their own money to their account (reinforcing the “pay yourself first” habit) and offer to match the amount they choose to devote to investing.

Dayana Yochim is a staff writer at NerdWallet, a personal finance website. Email: DYochim@nerdwallet.com. Twitter: @dayanayochim.

The article Give Your Child the Gift of Stocks originally appeared on NerdWallet.