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Help Children & Grandchildren Invest |
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Help Your Children and Grandchildren become Smart Investors
You've learned many lessons about managing money and investments. Why not pass them along to your children and grandchildren? The sooner kids learn the basics of saving and investing, the better prepared they'll be for their financial future.
Here are a few tips for getting young investors off to a good start.
Teach them how to save. Give children an allowance, then teach them the difference between saving and spending. Show them how to divide their money into two pools - one to spend and the other to put into a bank account. If children earn extra cash by babysitting, mowing lawns or doing other chores, offer to match the funds they put into their savings account. This way they'll be motivated to save more.
Make Stock-picking fun. Children are often fascinated by the idea of owning shares of a company. And the more they understand about stocks, the more interested they become.
One way to generate interest is to play a family 'stock-picking' game. Have everyone in the family choose a stock to follow for a month or so. Then award a prize to the person whose stock performed best. This is a good opportunity to teach the basics of stock analysis, by examining the factors that caused some investments to perform better than others. And don't underestimate your children's ability to grasp fairly sophisticated concepts. Children love to learn.
Give cash or investments. Give children money to invest in the stock market, or buy stocks on their behalf. You can even take the stock market game a step further and give shares. It's a good idea for children to invest in companies whose products are familiar. But make sure they're quality businesses with good prospects.
Beware of the potential tax implications of giving money or investments. In some cases, tax consequences can arise when you transfer property-including securities-to a relative under the age of 18. Income earned by the investment, such as interest or dividends, is attributable to you for tax purposes until the recipient is 18. This applies only to 'first-generation' income-amounts earned each year by the original investment. 'Second-generation" income, such as compound interest, is taxable in the child's hands. However, capital gains earned by selling an investment at a profit are taxable in the child's hands instead of yours.
Show the way. Children learn by example. Show them how you save and invest. Explain how you reached a savings goal, such as buying a car. Or demonstrate how you invest for their post-secondary education. Stress concepts such as setting objectives and making regular investments.
These are lessons that will last a lifetime. They'll equip your children or grandchildren with the knowledge and skills they'll need to become smart savers and investors.
- Member CIPF - This article was provided by Brenda Fischer, an investment representative with the financial services firm, Edward Jones. - |
