Thursday, October 26, 2006

Children and the Stock Market

When Should Children Learn To Invest?

The concept of children and the stock market seems as logical as mixing nitrogen and glycerin in a blender in your kitchen. Children joining the stock market community? Shouldn’t they be playing Playstation 2 or 3 now? In reality, the combination of children and the stock market and the world’s future is a natural fit. Remember, most of today’s baby boomer investors didn’t have a home computer or video game when they were kids; this generation can save the universe courtesy of Sony and other program creators. There are some keys to introducing your children to the stock market, so let’s get started.

First, it is imperative to start this adventure with a good understanding of stock market basics. You can start by teaching those youngsters that investing is totally different from saving. You might save to buy a new bike, but invest to have the money for college. Next in the process of combining your children and the stock market would be to cover topics such as portfolio diversification, liquidity, and risk reward ratios.

Ready to give your kids the family fortune yet? Let’s hope not! Before the kids actually start picking stocks and investing with real money, it’s best to start with a mock portfolio. There are a variety of ways for kids or anyone else to practice online stock market trading. There are a number of online games for stock and option investing simulation games. Prefer FOREX currency trading for beginners? It’s there too. Or if you enjoy the more traditional method, you can do this all on your own by helping your child construct and track his/her own portfolio of stocks. It’s also wise to encourage your children to invest in companies that they know, such as Disney, Coca Cola, Nike, or Microsoft.

While in the stock market, you can teach your children to track their investments, practice money management techniques, monitor company performance, research each investment, and track trends in the market. Junior probably has a good idea if Sony will impact Microsoft’s profit when the Playstation 3 is launched. This is also a great opportunity to begin teaching the concepts of Japanese Candlesticks stock trading to your children in the stock market. Chances are, they will pick up the principles much quicker than poor old dad!

Once you, and your kids, are ready for the stock market, there are a several investment options you can choose from. The safest course is probably finding a mutual fund. Although this is not the most exciting option, there are kid friendly mutual funds available, and actually some that provide stock market investing education materials as well. All of the principles your kids have learned apply and the bottom line results are real.

Although the children and the stock market relationship prevents them from owning stocks or opening brokerage accounts, their parents can set up custodial accounts for them under the Uniform Gifts to Minors Act. There are tax ramifications, but you can consult your tax advisor with any questions. Teaching your children to learn how to invest on their own is a valuable first step in their ability to control their financial destiny, as well as a great way for them to spend time with their parents. After you’re finished, maybe you can save the universe together on Playstation 3! And remember this one Dad, you’re probably buying one for Christmas!

Merry Christmas Kids!