The Best Investment for Children
Children are naturally curious about money, and for good or ill, kids will learn many of their financial habits from their parents. That is why it is important for parents to discuss saving and investing with their kids as soon as they are old enough to understand the concept of money. It is also important for parents to look for investments that are suitable for their kids, and investments that will help to drive home important investment concepts such as patience, prudence and intelligent choices.
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Have the Kids Earn Their Own Money
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Before your kids can start investing their own money they will need to have money of their own. Parents could simply give money to their kids, but a better strategy is to have those children earn the money. Children will have more respect for money if it has been earned, and earning their own money can give kids a sense of satisfaction and pride.
Whether it is taking out the garbage, cleaning their rooms or performing other unpleasant but necessary tasks, parents can give their kids chores to do and use the money they earn to teach valuable financial lessons.
Kid Friendly Stocks
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Your child might not care much about the price earnings multiple of Disney Corp., but chances are she is quite enthusiastic about the products Disney has to offer. So why not get your child off to a great start by giving the gift of Disney stock? This gift is sure to be a hit with your child, especially once they realize that they are a part owner of the company.
Parents and grandparents with lots of money to spend might want to combine that Disney stock with tickets to the nearest Disney theme park, while those with less to spend can pair that Disney stock certificate with tickets to the latest Disney film or ice skating extravaganza.
Those who want additional information can contact Disney (see References). Disney is by no means the only kid-friendly company parents can consider. There are a wealth of great choices, and parents can tailor those investments to the tastes of their children. -
Understanding Savings Accounts
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A savings account can be the foundation for all other types of investments, and children who start investing early are more likely to learn how to handle money wisely. Parents can do their children a big favor by opening a simple savings account in their names as soon as possible. Even the youngest children have access to money, either in the form of an allowance or in the form of gifts from relatives.
One of the best lessons parents can teach their children is the value of saving a portion of every dollar they receive. Financially savvy parents might want to implement the "10 percent solution." Ask the child to put 10 percent of every monetary gift and bit of allowance into a savings account. Then the kids can watch their savings grow and experience firsthand the power of regular saving and compound interest. Parents might even want to take a page from their employers' 401(k) plans and match a portion of their children's savings.
Mutual Funds
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Opening a mutual fund for your child can give your child a head start on investing. By investing a small amount of money, parents can set their children up for a lifetime of financial success. In fact, starting a mutual fund with $100 and adding $20 a month can give your son or daughter a nest egg of more than $10,000 by the time she is 18 years old, assuming an average annual return of 8 percent on those investments. Parents who want to run the numbers for themselves and plan their kids' investment strategies can use the calculator found at http://www.globalrph.com/davesfv.htm.
Exchange Traded Funds
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Exchange traded funds (ETFs) can also provide a valuable savings vehicle for young people. Large diversified ETFs, such as the one that tracks the performance of the Standard and Poor's 500 index, allow children to participate in the success of the stock market for a reasonable price. Interested parents can open a brokerage account with a discount broker such as Scottrade, E*Trade or TD Ameritrade and buy a few shares of their favorite ETF.
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