The Millionaire Blog

In my previous post It’s not all about me! 5 tips for helping kids learn about finances.I shared 5 tips on helping your child learn about money. One of those tips was to open an account that would allow your child to invest some money in stocks or other investment vehicles. I’d like to share what we did for our 9 year old daughter.

The lesson I wanted her to learn was how to make money work hard for her.

I first went to
ShareBuilder.com
and opened up a custodial account. A custodial account is nothing more than an account for a minor (my daughter) that is held and controlled by an adult (that would be me).

The great thing about
ShareBuilder.com is you can purchase partial stocks or ETF (Electronic Transfer Fund) of any company they carry. This means that I can fund my account with $30 and buy $26 worth of Apple stock. ($30 minus $4 transaction fee per trade) even though I may not have the funds to buy a full share.

You also have the option of setting up monthly automatic investments. For example I can set up my account so that every 2nd Tuesday I purchase $30 worth of Apple, or I can set it up to purchase $10 worth of Apple, $10 worth of Home Depot, $15 worth of Sirius etc. Keep in mind there is a $4 fee for each stock you buy. That is the fee under the plan we have which is the Basic Account, some account have lower fees.

They will ask for a funding source, usually your checking or savings account. You can move money into a money market account and have it ready when you need it, or you can fund your account the day before you trade just for the amount of the trade and fees.

They also have pretty good research tools you can use to help you make investment decisions.

If you are a bit bolder you can also do real-time trades. We won;t just yet.

After we opened the account I sat with my daughter at the computer and explained to her what passive income is and how investing in stocks can help her generate passive income. The best way I have found to explain passive income to a child is to tell them that each dollar is like a little employee who works to make them more money without them having to do any of the work. (credit to Robert Kiyosaki).

My daughter works on a commission basis around the house (credit Dave Ramsey for that). If she does all the chores we have on the list she stands to make $30 a month. So with last month commissions she decided to invest completely in Apple stock.

She is now a stock-owner and already thinking of next months investment. She called me today and boldly stated she wants to buy some Chesapeake Oil stock. That’s my baby

PS: I usually do not recommend investing in stocks as a long-term investment tool, I prefer mutual funds. However, as a tool to teach finance and with the small amount of money we are risking I think it is worth it.

Regards