How to Buy Stock as Gifts For Children

Invest with a child's long-term horizon in mind.

As a parent or family member it's rewarding to help a child start building wealth for her future. When deciding what to give as a special gift for a child's birthday, graduation, holiday or other celebration, think of investments such as stocks. These long-term investment instruments make great gifts for children, mainly because children have a long-term investment horizon. Combine the stock with investment literature that teaches the child the value of money and the investing.

Difficulty:

Moderately Easy

Instructions

Things You'll Need

• Child's Social Security number

1. Decide how to invest in or buy the shares of stock you are planning to give. The easiest and most financial efficient way to buy stocks for children as gifts is through Dividend Reinvestment Plans, or DRIPs. Many companies accept direct investments from anyone who wants to invest. This means that you can invest without going through a broker and without paying high fees and commission. Once you buy the first share for the child, anyone can continue adding to the account by buying more shares. The dividends earned by the shares of stock can be automatically reinvested to buy more.

2. Decide how to invest in the DRIP. Contact the individual companies via their Investor Relations department and ask if you can purchase shares of stock directly. Alternately, use a DRIP service company, which requires the child's Social Security number and the creation of a custodial account.

3. Choose a company in which to invest, which often means buying stocks with which you are familiar. Remember a child has a long-term horizon for investing. Buy shares in companies that offer growth over the long-term. Typically, growth companies don't pay dividends, or pay only a minimal amount. Income stocks pay dividends, but may not experience as much growth.

4. Buy the share of stock as a gift for your child, grandchild, niece or nephew. If you decide to buy directly from a company, you will receive a statement from the company representing the purchase. If you buy from a DRIP service company, you'll receive a statement with the purchased shares held in the custodial account.

References

• Fool.com; Why Johnny Needs Stock: Drips Are For Kids; Vince Hanks; March 2000