How to Buy Stocks for your Kids

Buying stocks for your children is an ideal way to give them a good financial start in life and teach them great monetary habits. Learning the ins and outs of investing at an early age provides the building blocks of future success. 

The following discusses the two options that parents have when purchasing stocks for their offspring.

Everything You Need to Know About Buying Stocks for Kids

• Purchasing stocks for kids: buying on their behalf
• Purchasing stocks for kids: let them get involved 

Purchasing stocks for kids: buying on their behalf

The first thing to understand is that minors can’t purchase stocks in their own name. However, there are two ways that you can buy them on their behalf. These are known as a Guardian Account and a Custodial Account. 

• Guardian Account: You own the account, and any gains are taxed at your rate.
• Custodial Account: You don’t own the account—instead, this account is owned by the child. However, you have control of it until the child reaches either 18 or 21 years (dependent on individual state rules). Gains are taxed at the child’s rate. 

Both types have individual advantages that should be taken into consideration as to which works best in your situation. Many people take expert advice for this. Most brokerages allow you to open either type of account. 

Purchasing stocks for kids: let them get involved 

As well as the financial benefits of owning stocks and the potential gains, buying stocks for your children is all about creating crucial saving and investing habits. Letting the child get involved in their purchasing choices is vital and can be the start of lifelong good financial management.

One way to help your child understand the nuts and bolts of investing is to let them set up a hypothetical portfolio. Use their language—while there are many (many!) websites that allow you to do this, once your child has a cell then a good option is for them to use one of the many good smartphone apps to track their potential stock purchases.

Encourage them to: 

• Research the companies that they’re considering investing into
• Track the rise and fall of the stocks
• Consider both current and future gains
• Introduce the risk factor (low, medium, high)

Once you and your child are happy to move forward, it’s time to purchase stocks on their behalf. While they’ll be the one to drive the choices, you’ll be on hand to help them avoid any major investment mistakes.

It’s probably wise to stick to stocks that might interest them at first (think Disney, Apple, Nike, etc.) as these are companies that they’re familiar with and can begin to grasp the fundamentals of investing. As they grow—both in knowledge and age—you might think about introducing dividend stocks, index funds, and exchange-traded funds.

As all stocks can fall as well as rise, don’t shield your child from this fact. It’s important to learn at an early stage that poor decision-making can have unwanted consequences. 

One thing about investing on behalf of your kids, and explaining the fundamental aspects to them, is that it takes you back to basics as well. Revisiting these vital investment elements is something we often fail to do—but it can prove to be an important reminder for all of us to understand where we stand on many aspects, such as risk and exactly what our investing aims are.

Even Children Need Expert Investment Advice: Let Capital do the Talking

While parents will, naturally, guide the first tentative steps into their child’s investments, it always pays to get the best professional advice. At Capita, our investing experts provide the ultimate service to ensure that your kid’s first investing experiences lay the foundation of a lifelong love of careful financial management. 

Visit https://www.capitafinancialnetwork.com/services/investing to find out more about our market-leading services and get in touch today for a confidential discussion.