Mutual Funds for Kids!

[grantmeaname]

I ran into something interesting for the first time today: the Monetta Young Investors fund. It's a mutual fund that's mostly broad market, but also buys companies recognizable to small kids and sends out quarterly invesment newsletters. What a neat idea!

[grantmeaname]

While we're on the topic, the Federal Reserve puts out some incredible money comic books for slightly older kids (or adults who are young at heart). Some cover what the Fed does, but the others are a little broader.

[carolinakaren]

I don't have any children, but I am always trying to think of meaningful gifts for my niece and nephew, along with ways to help them learn good money habits. They are 11 and 7 years old. This might  be fun for the 11-year old. Thanks for the idea! 

[Karl]

The fund looks interesting on Morningstar (http://quotes.morningstar.com/fund/myifx/f?t=MYIFX).  It has a nice risk/reward ratio.  On the other hand, the expenses seem high, perhaps due to the low fund size, and the buy-in of $1000 seems like a bit much for most children to put together on their own.  It seems, to me, like the state college funding options might prove a better training ground, although I like the idea very much.

[yolfer]

In the book Bank of Dad*, the author suggests setting up a mock stock exchange for your children. They "invest" by giving you cash, which you deposit in an account somewhere and make an entry in a spreadsheet or ledger of the "purchase" price and shares purchased. You hold on to the cash until they're ready to "sell", at which point they get back their earnings or losses. So you're on the hook if stocks go up, but even if you end up forking out some cash to pay for their earnings, I think it's money well spent as a parent to educate your child about investing.

I tried to set this up with my oldest sons but I think they're still too young to get it. I'll keep bringing it up until they latch on. I wish someone had done this for me so I could have gotten the "of course I'm smarter than the market so I'll pick individual stocks" insanity out of my system with tens of dollars at age 8 instead of thousands of dollars at age 20.

* I think this is a sexist name, for the record

[Rollin]

In the book Bank of Dad*, the author suggests setting up a mock stock exchange for your children. They "invest" by giving you cash, which you deposit in an account somewhere and make an entry in a spreadsheet or ledger of the "purchase" price and shares purchased. You hold on to the cash until they're ready to "sell", at which point they get back their earnings or losses. So you're on the hook if stocks go up, but even if you end up forking out some cash to pay for their earnings, I think it's money well spent as a parent to educate your child about investing.

I tried to set this up with my oldest sons but I think they're still too young to get it. I'll keep bringing it up until they latch on. I wish someone had done this for me so I could have gotten the "of course I'm smarter than the market so I'll pick individual stocks" insanity out of my system with tens of dollars at age 8 instead of thousands of dollars at age 20.

* I think this is a sexist name, for the record

I want to invest the kid's savings so I just talked with Scottrade (insert any of the same name here) and they suggested setting up a "custodial" account for our children.  The kids can use the website to do research, etc, but the parents would be in control.  That way, if they gain it is real money - not just from Dad's or Mom's pocket.  I think the colorful website with all the great charts, etc. would do better for them than my dry explanations.  Of course, it depends on their age.

Another option if you have a mortgage or other debt is to have them pay off part of it with their savings (keeping it written and formal so they can track it) and they receive the interest from you that you would have paid the bank.  That way they invest in the house that they live in etc.

[yolfer]

Another option if you have a mortgage or other debt is to have them pay off part of it with their savings (keeping it written and formal so they can track it) and they receive the interest from you that you would have paid the bank.  That way they invest in the house that they live in etc.

Whoa, that's pretty genius!

[Rollin]

Another option if you have a mortgage or other debt is to have them pay off part of it with their savings (keeping it written and formal so they can track it) and they receive the interest from you that you would have paid the bank.  That way they invest in the house that they live in etc.

Whoa, that's pretty genius!

We talked it over and they want to invest in the house.  Each of them like the idea of investing, but when I tell them that they could loose money (stock market) they get quite worried.  I too would not feel great about encouraging them in their first investment and loose a lot of $$.  If they had more money (each has approx. $1,400) I would work to get them to diversify, but for now I think they are right on.  We can build on this.

[Leisured]

In Australia, it is possible to set up a superannuation fund for children at birth. Australian super funds lock money away until retirement, but have favorable tax treatment. By the time the child grows up and leaves school, the super fund will have had nearly two decades of growth, so is off to a flying start. Would this work with the US 401k accounts?

[Undecided]

In Australia, it is possible to set up a superannuation fund for children at birth. Australian super funds lock money away until retirement, but have favorable tax treatment. By the time the child grows up and leaves school, the super fund will have had nearly two decades of growth, so is off to a flying start. Would this work with the US 401k accounts?

Generally no. The U.S. "retirement" account options are only available to persons who are employed (e.g., a 401(k)) and/or have earned income (for an IRA). So while it's not impossible that a young child (say, one who works as a catalog model) may be able to use those options practically from birth, it's not common. However, older children who do some work will in many cases be able to use at least an IRA, up to the lower of the contribution limit or their own earned income.

[Leisured]

Thankyou for the information, Undecided. The alternative is to buy, say, an index fund for a child soon after birth, put in, say, $2000 and let the money accumulate. The risk is that the child, when grown up, will cash in the fund and blow the money. If the amount is small it will not matter much, and the young person will have first hand experience of money accumulating over time.