Son wants to invest tiny bit of money, need advice plz.

[vegasnative]

Hi all~
My son, he is 10, has a savings account already. Each week he gets his allowance he gets some in his wallet (that is money they can spend on whatever they want), then half goes in his bank savings account. Any money he gets for birthday, Christmas, etc....he has to put half away.

Anyways, he has saved up $300 in his wallet. It's just sitting here in his wallet and it's his to do with whatever he likes. He wants to invest it. Are CDs still good? I don't really know what to do for him so I was hoping to get some advice here. I'm waiting on a children's book from the library about kids and money so I can sit with him and explain it better.

Also, their allowance is not huge. They get $2 a week. One dollar goes in their wallet, one dollar goes in their savings acct., so you can see he has done really well already with saving. His other 2 brothers can't keep money in their wallets at all.

What are some of your suggestions? I did tell him we could put some of his wallet money into the bank so it could start accruing interest, but he is able to take that portion out whenever he wants because it is still technically "wallet" money. I've mentioned that he can't take CD money out whenever, that he has to wait, and he is fine with that too.

 

[crisi]

If it were my kid, I'd open an Ameritrade account and put it into something where he'll probably see some real return - utility stocks tend to be low risk and pay pretty high dividends. If the market crashes, he'll "loose" some money on paper - but he's ten - so have him be patient and he'll see it come back and learn something. (AT&T is pretty much a utiity company at this point, it pays a decent dividend and I was just looking at my portfolio yesterday - its still rated a Buy by Standard and Poors. I also have Verizon, Excel Energy, Centerpoint Energy and Duke for this reason - pharmaceuticals also fit that profile - I have a few of those, too - there is a little more risk and they need to be watched closer since if the patents run out without stuff in the R&D pipeline, they can take a hit, but they do tend to bounce back).

My cousin started this way with babysitting money - her kids weren't in middle school yet before she had college paid for for three.

 

[akcire]

Hi all~
My son, he is 10, has a savings account already. Each week he gets his allowance he gets some in his wallet (that is money they can spend on whatever they want), then half goes in his bank savings account. Any money he gets for birthday, Christmas, etc....he has to put half away.

Anyways, he has saved up $300 in his wallet. It's just sitting here in his wallet and it's his to do with whatever he likes. He wants to invest it. Are CDs still good? I don't really know what to do for him so I was hoping to get some advice here. I'm waiting on a children's book from the library about kids and money so I can sit with him and explain it better.

Also, their allowance is not huge. They get $2 a week. One dollar goes in their wallet, one dollar goes in their savings acct., so you can see he has done really well already with saving. His other 2 brothers can't keep money in their wallets at all.

What are some of your suggestions? I did tell him we could put some of his wallet money into the bank so it could start accruing interest, but he is able to take that portion out whenever he wants because it is still technically "wallet" money. I've mentioned that he can't take CD money out whenever, that he has to wait, and he is fine with that too.

You are going to have to "shop" around. Near me there are local banks and credit unions offering children's accounts which have no fees and also play up to 4%. I am sure you recognize this as a marketing tactic. I opened an account for my daughter (at 9 months she got her first debit card )
and liked the bank I opened an account for myself also--so it worked! Last time I looked the best CD rates were around 1%.

It sounds like your son is more interested in a brokerage account. I know that you used to be able to open "junior brokerage" accounts. I had one when I was a preteen at the same bank as my parents. I don't know if there was a minimum (I had a good amount more than $300, I think more like $3500). If you do decide to have him invest in stocks make sure to buy things and concepts he understands. I know Annies snacks recently IPO'd and their stock symbol is BNNY. I bought some as a birthday gift for a friends daughter.

The other option is US Savings Bonds. You just set up an account on treasury direct. The bonds need to be held a minimum of 6 months, but can be redeemed any time after that point. I purchased some early this month and I bond are paying a little better than 2.5%.

If you think you son is just going to save his money for a short time and then spend it, I probably would not bother with any of these options. I would let him bank with mom, and for his $300 investment give him $1 a month. I would issue him a balance sheet similar to the bank and take his funds. This way he can see the benefits of savings, when his balance sheet increases. You can discuss compound interest without having to make special trips to his bank for a $1 deposit.

 

[vegasnative]

If it were my kid, I'd open an Ameritrade account and put it into something where he'll probably see some real return - utility stocks tend to be low risk and pay pretty high dividends. If the market crashes, he'll "loose" some money on paper - but he's ten - so have him be patient and he'll see it come back and learn something. (AT&T is pretty much a utiity company at this point, it pays a decent dividend and I was just looking at my portfolio yesterday - its still rated a Buy by Standard and Poors. I also have Verizon, Excel Energy, Centerpoint Energy and Duke for this reason - pharmaceuticals also fit that profile - I have a few of those, too - there is a little more risk and they need to be watched closer since if the patents run out without stuff in the R&D pipeline, they can take a hit, but they do tend to bounce back).

My cousin started this way with babysitting money - her kids weren't in middle school yet before she had college paid for for three.

Can I open an ameritrade acct online? I have a Sharebuilder acct that I can buy stocks, but I really don't know what I'm doing. I have a few Dis stocks that I bought only because I love Dis. Should I do something like that? I think I have to pay $4 each time I buy something. Hmmm, maybe I can do that for him through that acct???

 

[vegasnative]

You are going to have to "shop" around. Near me there are local banks and credit unions offering children's accounts which have no fees and also play up to 4%. I am sure you recognize this as a marketing tactic. I opened an account for my daughter (at 9 months she got her first debit card )
and liked the bank I opened an account for myself also--so it worked! Last time I looked the best CD rates were around 1%.

It sounds like your son is more interested in a brokerage account. I know that you used to be able to open "junior brokerage" accounts. I had one when I was a preteen at the same bank as my parents. I don't know if there was a minimum (I had a good amount more than $300, I think more like $3500). If you do decide to have him invest in stocks make sure to buy things and concepts he understands. I know Annies snacks recently IPO'd and their stock symbol is BNNY. I bought some as a birthday gift for a friends daughter.

The other option is US Savings Bonds. You just set up an account on treasury direct. The bonds need to be held a minimum of 6 months, but can be redeemed any time after that point. I purchased some early this month and I bond are paying a little better than 2.5%.

If you think you son is just going to save his money for a short time and then spend it, I probably would not bother with any of these options. I would let him bank with mom, and for his $300 investment give him $1 a month. I would issue him a balance sheet similar to the bank and take his funds. This way he can see the benefits of savings, when his balance sheet increases. You can discuss compound interest without having to make special trips to his bank for a $1 deposit.

His savings acct is actually at a credit union, no fees. But that money in there is what we call "dead" money. He can't touch his savings acct money. This $300 is his "wallet" money so he can do what he likes with it. He wants to invest it, and he said he doesn't care if he can touch it or not. He is more interested in watching it grow, I believe. That's why I was thinking of putting it into a CD for him. I've told him that if he puts it into a CD he can keep rolling it over, and he seems ok with that.

I just don't know much about CDs or stocks. We have a guy at my husbands work that does all that for us with our money. I just look at the statements each quarter.

 

[thewebbs5]

His savings acct is actually at a credit union, no fees. But that money in there is what we call "dead" money. He can't touch his savings acct money. This $300 is his "wallet" money so he can do what he likes with it. He wants to invest it, and he said he doesn't care if he can touch it or not. He is more interested in watching it grow, I believe. That's why I was thinking of putting it into a CD for him. I've told him that if he puts it into a CD he can keep rolling it over, and he seems ok with that.

I just don't know much about CDs or stocks. We have a guy at my husbands work that does all that for us with our money. I just look at the statements each quarter.

CDs are not the way to go. he won't earn enough money to even see it with just $300. Look online. you can open investment accounts online. Ask someone, just don't waste it on a CD or savings bonds.

 

[crisi]

Can I open an ameritrade acct online? I have a Sharebuilder acct that I can buy stocks, but I really don't know what I'm doing. I have a few Dis stocks that I bought only because I love Dis. Should I do something like that? I think I have to pay $4 each time I buy something. Hmmm, maybe I can do that for him through that acct???

Yep and yep. Sharebuilder will work fine. Something with really low fees - he wants to watch his money grow, not have his profits eaten up in fees. And he's a kid - so time moves slow. $300 in something that pays a 4% dividend will be $312 in a year (assuming the base stock stays steady - it might go up, it might go down) - but with a $4 fee will be $308. $8 (and $12 next year) is a lot of money to a 11 year old for not having to do anything - at the rate you are paying him spending money - that is two months of money!

 

[MomToOne]

I vote you just open "Bank of Mom and Dad" right now.

Create a savings book for him, that you update with deposits and withdraws.

Pay him a 5% interest rate, or something that really gets him excited to see his money grow. The tiny bit of interest he'd get at a real bank isn't going to generate any excitement, that's why I favor this approach right now.

I don't think a 10 year old can possibly understand the ups and downs of the market right now, or the risk, so I don't think getting a brokerage account or getting him into the market in any other way is right.

 

[cornflake]

Opening a brokerage acct and buying individual stocks with $300 won't get him much - in the way of returns or the excitement of being involved with an investment.

There just aren't that many stocks or shares of anything much he could buy and if you're not sure what you're doing and want something safer, like a utility stock, even fewer shares.

A mutual fund might be a better bet but you mostly need more money to buy into them.

If he wants to invest - and he's ok with that his money may also decrease - you might look at Betterment (it's only got a $25 minimum I think, though it might be $100, but whatever, and a low fee at the rate you're at). It's a very basic investment vehicle.

It's just pegged to the market and bonds (which are safer). You set your allocation - like you can say to invest 50/50, 90/10, whatever, and you can change that at any time - and then it's invested and rebalanced for you. Your investment changes day to day, you'll see dividends pay in, etc. It's a good thing for beginning investors who don't have stock knowledge. Bonds are pretty safe investments and long term, the market has always had a good rate of return, even if it doesn't in some particular years.

Might be a good way for him to learn the basics.

Lending Club is also an option you might want to look at. I think it too has the $25 or $100 buy in. That's a peer-to-peer lender. You invest by lending other people in the U.S. money; they pay you interest.

Here too, you CAN lose money, but if you choose to lend to people with excellent credit, good salaries, who have long job histories, (you can see all of this information, and ask them questions that they answer - and seeing all of that and making those decisions and beginning to understand what a credit rating does and etc., might be a valuable bonus for your son), it's generally very safe with a very good rate of return. Also, you reduce risk by only ever loaning any one person $25 - that's the minimum loan amt. per person.

If you do it that way, you can get really good returns, in the 7-10% a year range, but you can't access the money, it's loaned out. It's repaid every month and you can access that, but if you loan like $25 to a person, their repayment to you is <$1 a month over the loan, so it takes a little while to see money back in your account.

However, if he's patient and ok with letting it sit, he can do that and keep recycling the $ he's paid back (once there's $25 or more back in your acct - and you don't have to loan out the entire amt. at once to begin with, if you only see 4 lenders you like, then only lend to them, etc. - you can relend that to someone else and keep making interest) and build that initial investment into something really big over the long term.

Both of these I think you'd have to open the acct, being over 18, but you can just give him the passwords and you both know it's his money.

 

[ktmo]

Both of my girls have share builder accounts. We buy a little each month. They buy Disney stock.

 

[scootch]

I vote you just open "Bank of Mom and Dad" right now.

Create a savings book for him, that you update with deposits and withdraws.

Pay him a 5% interest rate, or something that really gets him excited to see his money grow. The tiny bit of interest he'd get at a real bank isn't going to generate any excitement, that's why I favor this approach right now.

I don't think a 10 year old can possibly understand the ups and downs of the market right now, or the risk, so I don't think getting a brokerage account or getting him into the market in any other way is right.

Great idea... thanks!

 

[semo233]

If he were my son, I would ask him if he wanted to see his money grow or take some chances and invest in a company he really likes. If he is able to invest in a company he really likes, (Nike, Toys R Us, Cartoon Netowrk, Disney, etc.) he may be more motivated to look at how the stock is doing and will recieve quarterly or monthly reports.
Let us know what you decide in the end!

 

[Cheshire Figment]

Early this year when Disney stock was at about $38, the annual dividend was 60¢ per share.

 

[vegasnative]

Thanks for the suggestions. It sounds like the $300 in his wallet won't bring him much return, so probably not worth doing anything with a brokerage fee. He has about $700 in his savings account so I told him we could put it together and invest that $1000. He said he would like to do that...his words, "I want to put my money where it will make the most money". LOL.

I think I will ask him if he wants to buy shares into something of his favorite places. See what he says about that.

I guess my main thought was, I would hate for him to take his wallet to the store and either loose the wallet or money, or heaven forbid a friend comes into the house and his hard work of saving the $300 is gone. KWIM?