During one of my math classes in middle school the teacher talked about the power of compound interest and asked if any of the students had stocks. Some raised their hands and said they had stock in things like Disney or Coca Cola, nothing fancy, mostly big name companies. However, I was pretty darn jealous. I wanted some compound interest and to say that I owned Disney and Coca Cola shares! Flash forward nearly a decade to yesterday when I was reminded of this experience by an email I received.
A 15 year old reader emailed me and asked “what do you think I should invest in?” Although I said I couldn’t offer advice, I wasn’t even sure if a 15 year old could invest. After quickly checking my best pal Google, I learned that minors aren’t even able to legally invest in stocks and have to do it through a custodial account through their parents. I’m not sure of all the technicalities, but it does seem fairly easy to set up. I was impressed by the question and wondered how early should kids start investing in the stock market?
Why Kids Should Invest
I’m a firm believer in learning through doing. Talk to a kid about the stock market day in and day out and they might pick up a little, but if you give the kid $100 in real money to invest in the market they’re much more likely to remember the lessons taught by Wall Street. They might speculate (more than likely), but at least they’ll begin to realize that there’s more involved which will begin to get them to start asking questions. Questions lead to research, books, and finding others who know the answers, which is a great way to learn. But without the involvement of real money, the kid probably won’t care nearly as much.
Parents start their kids off young in a lot of things such as playing piano, sports, or joining boy scouts. Why not let them dabble a bit in the market which will probably last with them much longer than their sports career?
A Fairly Successful Young Investor
At eleven years old, Warren Buffett bought his first stock… enough said 😉 .
What Should Kids be Focusing on?
I’m not so sure it’s the amount that matters (probably because a lot of kids won’t have much or will be saving for college), but I think just being active in the market will teach them the basics such as P/E ratios and margins. If they’re actively interested in their real money, they’ll learn more about the market just by being around it. Depending on who’s teaching them along the way they’ll most likely overcome speculative behavior and maybe even develop a little bit of investing patience!
How to Let Your Kid Invest in the Stock Market
If you’re a parent who’d be interested in letting your kid purchase some stock you’ll need to open a custodial account. Several brokers such as Tradeking.com, Zecco.com, and Scottrade.com offer such accounts, some without a minimum account balance.
If you have kids or are planning on having them in the future, why not let them get some hands on experience with investing and get them excited about it? Worse case scenario they lose a few hundred bucks and become more familiar with the market along the way. Who knows, if you start them at age 11 maybe they’ll beat the oracle of Omaha!
If you have kids, or are planning on having kids, are you going to get them involved in the market before they turn 18?
How old were you when you bought your first stock?
Image from S-t-r-a-n-g-e