What are Good Investments for a Child?
Children who are taught to invest at a young age can amass quite the nest egg when they reach adulthood, thanks to the time it takes for investments to mature and the power of long-term, compounding interest.
Raising investment-savvy children can yield impressive financial results.
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Why Children Should Invest
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Teaching children about the importance of investing early not only teaches them practical finance skills, but it also potentially provides them with financial reserves when they reach adulthood. If done with the right approach, investments made when children are young can help fund adult milestones such as a college education, a wedding, business venture or a home purchase.
Teaching children about investments educates them about finances early on -- skills that may take others decades to learn. Delaying self-gratification and having the wherewithal to invest money in long-term strategies are critical financial skills that will benefit children later in life, according to most finance experts.
Setting up an investment strategy for children doesn't have to be difficult. The one major advantage children have when it comes to investments is time. Their investments have years to grow and mature. This long-term approach gives children an inherent advantage. Investments left untouched or whose dividends are consistently reinvested give children an advantage over those who begin investing at a later age.
Savings Accounts for Children
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Savings accounts are a practical and economic way to get children to save early and often. Most children love the idea of having their very own bank account -- and it's a practical approach to get children to learn the value of money. Get your children into the habit of saving by opening an account in their name at a local bank or credit union.
Teach them to sock away a designated portion of their allowances and other gifts into an interest-bearing account, complete with visits to the bank to deposit their hard-earned money. Consistency is important, because the child learns that the more he saves, the more he'll have in his account.
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Shares and Stocks
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Encourage children to buy stocks. This takes a bit more financial savvy, but is rewarding if children are allowed to research and have a choice in their stock picks. Ideally, children should be allowed to buy stock or shares of a company that they are familiar with, such as toy makers, clothing manufacturers or food makers.
A child can be taught that owning shares of a particular stock makes him a part-owner, and she will be more likely to research and investigate companies that she is interested in. Children are ideal candidates for picking stocks because they have intimate knowledge of products and merchandise that may appeal to them.
Investing in the stock market can begin with as little as $100 in an individual retirement account at a large discount broker, investing a designated monthly or quarterly amount in a mutual fund or a direct re-investment plan (DRIP).
529 College Investment Plans
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If putting money away for college is the goal, 529 savings plans are ideal. Such tax-savings plans that put money away for future college expenses and come with tax advantages. Every state in the United States and the District of Columbia offers 529 plans. You can choose from pre-paid tuition plans, which allow advance purchase of credits for future tuition or room and board, or college savings plans for future tuition costs.
Treasury Bonds
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Treasury bonds are a more financially conservative long-term investment that, left to mature, are like a guaranteed investment. Treasury bonds are backed by the U.S. government and take years to mature to their face value. Treasury bonds can be treated like real money, with most taking at least 10 years to mature to their face value.
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