If you ask most kids what they want as a gift, few, if any, will say “stocks.” Generally speaking, kids tend to ask for more tangible items, like toys or video games. Yet, stocks might very well be the perfect gift for the kid who has everything. On a completely practical level, kids generally abandon most toys within a relatively short period of time, moving onto the next shiny object. This is particularly true for those fortunate kids who seem to have everything. But stocks can last a lifetime, and once they come of age, they’ll likely be grateful for what you’ve given them. Here are just a few reasons why stocks are the perfect gift for the kid who has everything.
It Bestows the Pride of Ownership
If you’re planning on getting your kid interested in owning stocks, it helps to give them shares in companies that they are already familiar with. For example, if your kid is a big gamer, shares of Nintendo or Activision Blizzard might pique their interest. Athletic kids might enjoy owning shares of Nike or Under Armour, while techies might be happy owning Apple or Nvidia. If you can teach your kid in simple terms that a stock really amounts to owning a portion of a company, you might be able to instill the pride of ownership in them. Kids who love Disneyland, for example — or Marvel — might beam with pride when given Disney shares, knowing that they actually own a part of the company they love so much.
It Focuses Kids’ Attention on Matters of Saving and Investment
Most kids aren’t that interested in concepts like “compound interest” and “long-term savings.” However, if you give them shares of stock, you can track the price with them over the months and years to give them first-hand knowledge of how investments act. Hopefully your investment will show a profit after some amount of time, if not immediately, and your kids might marvel at how something that was worth $100 a few months or years ago is now worth $150. Tracking share prices with your child can also teach them that even investments that are successful over the long run do go down from time to time and that it’s all a regular part of investing.
It Takes Advantage of the Power of Long-Term Compounding
The earlier you can start investing, whether for yourself or your child, the more you can take advantage of the power of long-term compounding. If you buy $100 of stock now and it goes up 10%, your child will earn $10. But 30 years down the road, when that original $100 could very easily be $3,000 or more, earning 10% in a year translates into a gain of $300, or triple your original investment. While your children may not fully grasp the power of compounding until much later in life, by giving them stock at a young age, you’re taking advantage of one of the most important investment tools in their arsenal — their youth.
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It Sets Them Up for the Future
Beyond all the educational lessons that come with giving your kids shares of stock, there is the added benefit of giving them a financial head start in life. Not only will your kids already have some stocks of their own by the time they come of age, but there’s a good chance that they will also have at least some interest in continuing and growing a portfolio of their own as they age. Building a successful investment portfolio takes time, effort and dedication. But with the head start you will have given your kids at an early age, they won’t have to save as much to reach their long-term goals. Perhaps even more importantly, they’ll be well ahead of the game in terms of understanding investments. Once they start earning their own money, they’ll be more likely to take those lessons and turn them into long-term investment successes of their own.
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