Buying Stocks for Kids

Stock investments can be a great way to make a profit. Buying stocks for kids can also be a hands-on way for parents to teach their children the basics of personal finance and money management. Through introducing the stock market to kids, children can get a head start on learning to be successful in the business world.

Instructions

1. Understand the federal laws and state regulations regarding buying stocks for kids. In most states, anyone can give stocks to a child as a gift. However, you must be the child's legal guardian to manage investments placed in a child's name.

2. Determine whether you wish to buy direct stocks for your child, invest in an educational IRA or Coverdell Education Savings Account (ESA) for future educational costs (such as college tuition fees), or both.

3. Open an educational IRA account or a Coverdell Education Savings Account (ESA), if you want to buy stocks in order to pay for your child's future educational expenses. Money invested through such an IRA or ESA can be used tax free for educational purposes.

4. Register an investment account with an online stock broker if you wish to use the investments for your child's personal expenses. An online account allows you to buy stocks with small amounts of money. Etrade and Sharebuilder are two examples of stock brokers that are good for children and let young investors buy fractions of a stock.

5. Consult a financial advisor or family lawyer to plan for the transfer of the investments and stocks to your child's name when your child reaches age 18.

Tips & Warnings

• Buying stocks for kids can teach them basic money management skills. Investing for your child can help cover future educational expenses, such as college tuition.

• Consult your financial advisor to determine how your child's investments will be taxed.