Surely it's happened to you. You scour the toy stores looking for the latest "must have" toys for your children only to find that, within a day or two, the new toys have broken, run out of batteries, or are missing pieces. According to the California Society of CPAs (www.calcpa.org), a far better idea is to give children financial-related gifts. Gifts that teach the importance of sound money management and investing can provide valuable lessons that will serve your children or grandchildren for years to come.
Put Stock in Their Stockings
When it comes to teaching a child about investing, there is no better teacher than experience. For a school-age child or teenager, several shares of stock in a company that makes something the child can relate to, such as fast food, movies, or computer software, provide a meaningful gift and a valuable education. Supplement the gift with a lesson on how to follow a stock's performance in the newspaper.
As minors, kids cannot purchase or own stocks themselves. You can buy the shares in your name, if you have a brokerage account, or through a custodial account set up under the Uniform Transfers to Minor Act (UTMA) or the California Uniform Gifts to Minors Act (CUGMA). Under the UTMA or CUGMA, the investment is held in an adult's name in custody for the child until the child reaches 18 (21 in some states).
It can be expensive to buy just a few shares in a company, but there are some companies that will sell you their stock directly, without a broker, thereby eliminating a brokerage fee. There are also Dividend Reinvestment Plans (DRIPs) that permit current stockholders to purchase additional stock from the company without a broker. One Share of Stock, Inc. (www.oneshare.com) sells single shares of stock in certificate form that can be framed. There are more than 90 companies in its roster including Gap, Coca-Cola, Microsoft, and other companies children may know.
Combine Learning With Earning
Several companies offer mutual funds especially geared to children. These funds invest in child-friendly companies and send the young investors educational materials that teach them about investing. They also typically accept lower minimum opening deposits and target long-term growth.
Don't Forget Old Fashioned Savings Bonds
Good old U.S. Series EE Savings Bonds remain one of the safest investments and there is never a fee for buying or redeeming them. The bonds, which come in denominations as low as $25, are priced at a discount from their maturity value. The Series EE Savings Bond earns market-based rates, keyed to five-year Treasury securities. After the bond matures, the interest rate is linked to Treasury yields. You can defer federal income taxes on earnings until the savings bonds either reach final maturity or you can redeem them, whichever occurs earlier in the year. You can also elect to report the interest income ratably over the life of the bond on the child's return, which may be at a lower tax rate. You can purchase savings bonds at your local bank or online at the U.S. Savings Bonds web site at www.savingsbond.gov.
Wrap Up Books, Videos, And Software
At bookstores and educational toy stores, you can find books, videos, and board and computer games that help youngsters learn about money management and saving. For younger children, look for games that help children manage their allowance, invest or save. For older children, there are books for aspiring entrepreneurs, while a college student, living on his or her own for the first time, could benefit from a book on budgeting.
Financial management software or a session with a financial planner is an excellent gift for grown or newly married children. Finally, keep in mind that the holidays can be the perfect time to teach your children about the value of money—whether you give them a financial-related gift or help them manage their own money. CPAs urge you not to overlook these opportunities.