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To become a good saver and investor, you
probably had to learn some hard lessons
along the way. Would you like to save
your children or grandchildren those
troubles? You can, by teaching them,
early on, about the basics and benefits
of investing.
Here are a few ideas for
getting young investors off to a good
start:
Suggest a savings
strategy. If you give young children
an allowance, suggest that they divided
it into two pools – saving and spending.
If they earn money babysitting or mowing
lawns, offer to match whatever they put
in a savings account. They will be
pleased to see how their balance grows,
and, hopefully, they will be motivated
to keep putting more in.
Make picking stocks fun.
A lot of adults believe their children
or grandchildren would not be interested
in something as grown-up as the stock
market. But that is just not true.
Children are often fascinated by the
idea of owning shares of a company. The
more they understand about owning
stocks, the more interested they become.
So, consider playing a family
"stock-picking" game. Have everyone in
your family choose a stock to follow for
a month or so. At the end of that time,
award a small prize to the person whose
stock has done the best. You also may
want to add some "qualitative analysis"
by examining the different factors that
may have caused the winning stock to
outperform the rest. Keep all
explanations fairly simple, but never
underestimate your children's ability to
grasp fairly sophisticated concepts.
Children love to learn and they are
often better at it than adults.
Give stocks. If you
want to invest the money, you can go
beyond the stock-picking game and
actually give shares of stock to your
kids. Try to find companies that make
products with which your children are
familiar, provided, of course, that the
stocks are of high quality and have good
prospects. When you do give stocks to
your kids, be aware of the "kiddie tax."
According to the kiddie tax rules for
2006, the first $850 in unearned income
– interest, dividends and capital gains
– is tax-free and the next $850 is taxed
at the child's tax rate, which is
typically 10 percent, or 5 percent for
long-term capital gains. If your child
has unearned income of more than $1,700,
he or she will be taxed at the rate that
would apply to you if this money were
added to your taxable income. Children
14 and over pay taxes on all unearned
income at their own rate.
Show the right behavior.
Children are great imitators If you show
them how you are saving and investing
for the future, it is likely to leave a
strong impression. Let them know when
you have reached a particular
savings/investment goal – enough money
for a new car, for example. Show them
the statements for the accounts in which
you are investing for their college
education. However you do it, make sure
they understand the concepts of setting
objectives, making regular
contributions, delaying gratification,
etc.
By following the above
steps, you will provide your children or
grandchildren with the knowledge and
skills necessary to help them become
savers and investors. And those lessons
can last a lifetime. |
