Interesting story here about someone who has set up a stock account for his 9-year old daughter. The account is actually in her name but controlled by the parent. The original post is here, “My 9 Year Old’s First Investing Lesson” and the update is here, “Update on Sharebuilder Account.” It’s too bad that so many parents don’t teach their kids about investing and many parents don’t even teach their children about personal finance, often controlling their chequing accounts well into their 20s (I can give first-hand accounts of this). I think it’s great that this kid has an account opened up where she can buy stock in her own name. I actually hope that her stocks do very, very badly! Losing money in the stock market is a very important lesson that ever person should learn as as young an age as possible! I didn’t learn this lesson until my early 20s; however, I wish I had learned even earlier.
She owns $28 in Apple stock and $21 in Chesapeake Oil stock (as of last weekend). The only thing I found surprising was that they purchased such low amounts. The commission was $4 per trade. So Apple’s stock has to go up 14% just to break even, and 19% for Chesapeake Oil. Apparently “if she does all the chores we have on the list she stands to make $30 a month.” I would have advised her to be patient, wait a few months until she has enough money to invest such that the commissions become a very insignificant percentage of the stock purchase.
This reminds me of when I first invested in mutual funds in around 1996-1997. I invested my own money that I made through my own jobs, but my dad matched my contributions, much like an employer might. This is another great way to encourage kids to save and teach them about investing. themillionaireblog.com has some other tips for helping children learn about finances.
Another interesting aspect of these articles is this sharebuilder.com site. The millionaireblog.com explains:
The great thing about ShareBuilder.com is you can purchase partial stocks or ETF (Electronic Transfer Fund) of any company they carry. This means that I can fund my account with $30 and buy $26 worth of Apple stock. ($30 minus $4 transaction fee per trade) even though I may not have the funds to buy a full share.
You also have the option of setting up monthly automatic investments. For example I can set up my account so that every 2nd Tuesday I purchase $30 worth of Apple, or I can set it up to purchase $10 worth of Apple, $10 worth of Home Depot, $15 worth of Sirius etc. Keep in mind there is a $4 fee for each stock you buy. That is the fee under the plan we have which is the Basic Account, some account have lower fees.
This is certainly an excellent way to invest in stocks using smaller amounts of money. It makes building a diversified group of stocks (20-30) much easier for the small investor. I haven’t yet looked into whether or not Canadians can open an account at sharebuilder.com. I know that a long time ago when I set up an account at a US based discount online trader I had to send in some extra IRS forms, but other than that anyone could set up an account (in US dollars of course).
2 thoughts on “Teaching kids about investing”
Another way to start investnig cheaply is using DRIP (dividend reinvestment programs). Once you are registered, you can send any amount of money (like $100) and they will be you the amount of shares equal to that (like 2.345 shares). No commissions to pay. Don’t have to buy round lots.
The other option we have in canada like sharebuilder is canadianshareowners.com. Similar idea. $9 per trade up to a max of $36. After that, no more cost. So you could buy shares from 10 different companies all for just $36 commission.
Ah, that’s right I forgot about Shareowner. I wrote about them briefly here in my article about DRIPs for iUnits ETFs.