Stock in the stocking
This year, before you wait in the cold and snow to buy your child the latest must-have toy, consider giving a financial-related gift instead. Gifts that teach the importance of sound money management and investment practices can provide valuable lessons that will serve your children or grandchildren for years to come.
Think giving money is crass and boring? It doesn’t have to be—nor do you need to limit your gift-giving to writing a cheque or putting cash in an envelope.
Gifts that can grow over time
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.
Term deposits, savings bonds and Registered Educational Savings Plans are also good gifts for kids and grandkids. These gifts will not only help them learn about money, they also help to show that you believe in their future.
Give a portfolio
For a teenager, you might consider gifting several shares of stock in a retail, movie production or electronics company. Together you can follow the stock’s performance in the paper and watch for news about the company.
To make it happen, you’ll need to open an account in your name in trust for the child. This is because financial institutions and brokerage houses will not allow accounts solely in the name of a child until they’ve reached the age of maturity.
Remember too, that Canadian tax rules require income earned by a child under the age of 18 from assets or property provided by a parent is attributed to the parent. Income that is received from age 18 onward is considered taxable in the recipient’s name, but capital gains made on the sale of investments are considered to be earned by the child regardless of age. If you want the investment earnings to be taxed in the child’s name, you might be better off choosing mutual funds that provide a capital gains distribution rather than interest and dividends. Or you can invest in stocks that pay little or no dividends yet have a likelihood of growing in value.
Individual stocks may be better for educational purposes. Your children will receive annual reports and shareholder correspondence and begin to understand they are investing in businesses, not pieces of paper. This will lead to them learning more about the fundamentals of investment management. If you invest in a local company, you can even attend the annual meeting together.
If you do buy individual stocks, try to pick companies that have dividend reinvestment programs so that additional shares can be acquired each time dividends are paid. This way you won’t have to worry about investing small amounts of money, and you will be amazed how these small bits can aggregate into large positions in 10 or 20 years.
Books, videos and software
At bookstores and educational toy stores, you can find books, videos, board games and computer games that teach money management skills. For younger children, look for games that teach the advantages of saving part of their allowance. And don’t forget about the old classic, Monopoly, which teaches children how property appreciates in value. Older children might like a book about aspiring entrepreneurs, while college students, living on their own for the first time, might benefit from a book on budgeting. Your newly married children might benefit from with a session with a financial planner.
To discuss your investment options, call us to set up an appointment for you and your child to meet with one of our financial advisors.