Teaching your kids financial literacy is essential and can help them succeed later in their life. As part of teaching your kids about budgeting, you should also teach them about investing. One of the simplest ways to do that is to research stocks for kids and help them buy their own.
Buying stocks for kids can help them learn about the importance of compound investing and understand both the risk and rewards of the stock market.
But how do you know which stocks to buy your kids? Keep reading to find out how to choose the right stock for your kids!
Can kids invest in the stock market?
Kids can invest in the stock market, but they can’t do it alone. They’ll need a parent or guardian to buy stocks on their behalf. A parent can do this by setting up a joint brokerage or custodial account for their kids.
You can start a custodial account for your kid at any age, as long as they are under 18 (or 21 in some states), and can gift up to $16,000 tax-free.
Keep in mind though that these gifts are irrevocable. That means once you add in money, they become the property of the child and you can’t take the money back.
While the kid will own the assets, the parent can still control the investments in it until the child isn't a minor anymore.
Why kids investing is important
Having stocks for kids is a good way for your child to learn investment basics. With your help, they can learn to do some basic analysis on any stocks they choose.
Stock analysis can include learning how to read a financial report, looking at how much money the company earned, and reviewing the company’s financial situation.
As they progress, they can do even more fundamental analyses of stocks. And most importantly, they’ll learn about the risks of the stock market, and understand how returns are not guaranteed, especially when investing in a riskier stock.
Why you should set up a custodial account for your kids
Setting up a custodial account for your children is a smart way for them to learn about the stock market while being safe with money. You’ll be able to purchase stocks on their behalf and teach them about investing.
When setting up a custodial account, look for accounts that have no stock trading fees and have a low minimum balance requirement. You can also consider accounts that allow fractional shares.
Keep in mind that if the kid’s stock earns dividend income, interest, or earnings, you’ll need to declare and pay taxes on it, so be sure to consult your tax advisor before you file your taxes.
How to buy stocks for your kids
Buying stocks for kids is easy and just takes a few steps
Setup a custodial brokerage account
First, you’ll need to set up a custodial account through a broker.
You can set up an account on their behalf. You’ll have the final say on the account until they reach age 18 or 21, depending on the state laws.
Not all brokerages offer custodial accounts, so you’ll need to find a broker who does. Many of the more established brands, like Fidelity or Vanguard, do offer custodial accounts.
Once you choose a broker, you can open an account in just a matter of minutes, depending on the broker. You’ll need to supply your personal information, along with your child’s, such as social security numbers, date of birth, and contact information.
Help your child set up their portfolio
Once you have an account set up, you can start purchasing stocks on behalf of your kids and work with them to build up their portfolios.
We'll get into the specific detail below, however, it's a good idea to build investing recurringly into your schedule. This way it becomes an active conversation between you and your child.
Best stocks for kids to learn investing
If you want your kids to learn about investing, you’ll need to start by buying them stocks. Here are some of the best stocks for kids:
Disney (NYSE: DIS)
Chances are your kid already loves Disney. So why not own some of their stock? Walt Disney is one of the largest entertainment conglomerates in the world.
They own more than just movies. They also have a large and diverse portfolio of parks, media, studio content, TV shows, sports content, and consumer products.
Investors seem to love them too, as the price of their stock has steadily been increasing for years. And with their Disney+ streaming service, the Disney brand is likely to stay relevant for a long time. The Disney ticker symbol is DIS.
Nike (NYSE: NKE)
Nike is a major international apparel, footwear, and accessories brand. Besides its signature swish trademark, it’s also known as the owner of Converse and recently acquired digital sales company Datalogue.
Nike isn’t just a sports brand and is very popular among teenagers. Nearly a third of Gen Zers select it as their favorite. If you have a teenager you want to encourage to understand finances and investing, then Nike stocks might be a brand they can identify with. Nike's ticker symbol is NKE.
Netflix (NASDAQ: NFLX)
Netflix stock may have been a little bumpy in recent years due to other streaming competitors entering the market, but it still remains a big player in the space. It also has kid's programming and has recently expanded its payment tiers in a bid to attract more subscribers.
If your kid enjoys watching cartoons and enjoys binge-watching shows as much as you, then buying stock in this entertainment company could be the thing they need to learn about investing. The Netflix ticker symbol is NFLX.
Scholastic (NASDAQ: SCHL)
If you’re looking for stocks for kids, you can also consider Scholastic. This multinational publishing house publishes and distributes books, comics, and educational material for kids and schools.
In fact, they are well known for their book fairs and will often sell books directly to kids and parents through fairs directly on school campuses. Today it still holds the title of being the largest operator of children’s book fairs in the U.S. Scholastic's ticker symbol is SCHL.
McDonald's (NYSE: MCD)
McDonald’s success doesn’t just come from its fast-food chains. It’s also a successful international business because it owns the land where its franchises are located. In other words, McDonald’s makes money from both rent and fast food.
It also has a history of providing its investors with a nice dividend yield. It had an average payout ratio of 59.4% in recent years.
And with the family-friendly approach to business, it’s a great stock to help your kids learn about investing basics like dividends. Their ticker symbol is MCD.
Mattel (NASDAQ: MAT)
U.S. consumers spent $38.19 billion on toys in recent years. But instead of buying your kid a new toy, why not buy them an investment that will likely last a lot longer than any toy.
Mattel is one of the world’s most popular toy companies. It has a partnership with Disney and produces many popular toys from the Disney brand, like Frozen. Check out their ticker symbol, MAT.
Hasbro (NASDAQ: HAS)
Another toy-making company that is sure to be a popular stock among kids is Hasbro.
Hasbro makes some of the most popular board games, like Monopoly, and other popular toy brands like Play-Doh, Peppa Pig, and Dungeons & Dragons. They also have a partnership with Disney to create toys from popular shows like Star Wars.
If you want to get your kids to care about investing in stocks, then buying toy stocks like Hasbro is a good bet. The Hasbro ticker symbol is HAS.
Help your kids become financially literate!
Buying stocks for kids can help them develop the necessary financial skills to begin their own investing journey.
By buying stocks in companies they identify with, they’ll be motivated to learn more about the investing process.
Starting a custodial account for your kids is easy and will give them skills they can use for the rest of their lives. And to increase their financial skills even more, check out these awesome business ideas for kids!