Costco Connection - January 2008

Your kids

and stocks

Starting young provides a
valuable lesson in investing

By Jim Cramer

Special to The Connection

AS BOTH A MONEY manager and a father, I can tell you there’s one thing you can teach your children about money that’s more important than practically all of the other financial advice anyone could ever come up with, let alone reasonably expect to teach a preteen. If you teach your children nothing else about money, even if you don’t teach them how to budget or save or stay out of debt, teach them to be investors.

Plenty of parents teach their children about the value of saving money, often by setting up a bank account under each child’s name and showing them how interest works. This is a fine thing to do, as the compounding of interest is like the eighth wonder of the world and I want everyone to see it. But I think you can do better than that: Set up a brokerage account for your children and buy them stock. Even if you buy them only one share of one company, it will be worth it, as long as you pick the right company.

The real trick here is to get your children interested in the market early so they learn about the ins and outs of investing. If you feel that buying real stock is excessive, you don’t have to set up a brokerage account. Instead you can create a rotisserie league of stocks, where you draft some stoc ks and your kids draft some others, using a limited amount of play money. The winning stock gets bought and put into the child’s account. (The winner will be the stock that appreciates the most over a certain period of time, maybe a month.)

This teaches children a much more powerful lesson than they’ll learn by starting a bank account. Investing in stocks will give your children much larger profits than if they had kept their money in the bank.

When kids see how much they could make by investing, especially if you teach them about this at a young age, they’ll be genuinely impressed. Plus, this is an opportunity for them to learn about losing money without it being too costly.

While most parents try to teach their kids how to be good sports if they lose (of course, they all really want to

win), I think my stock rotisserie league is much better, “Investing _certainly _longer _lasting _and _doubtless _more _{impor- tant} _in _its _lessons._in _stocks _will

^The ^key ^to ^making ^stocks ^come ^alive ^for ^childrenis to get them involved in something they know and make your may get excited about. I can’t stress how vital it is that _you _make _your _kids _excited _about _their _holdings. _I_children _much^used ^to ^grab ^the ^newspaper ^out ^of ^my ^dad’s ^armseach night when he came back from work, just to see ^larger ^profitsthe closing prices of stocks that I was following on _paper. _What _I _wouldn’t _have _done _to _have _been _really_than _if _theyinvesting in stocks. If we had had the Internet when _I _was _young, _I _would _have _been _going _online _to _chart_had _kept _their^how ^my ^stocks ^were ^doing.To capture the fancy of little kids—and they can ^money ⁱⁿbe as young as 6 years old—make a list of top-notch brands that you and your kids know and like and ^the ^bank.that your kids will naturally be able to follow. Think clothing, games, television shows, movies or even ” food. That way you can constantly refer to your child’s holdings and get her or him comfortable with the idea of actually having a piece of a company. You will be ingraining the investment process and making it fun.

I urge you to buy one share of a child-oriented stock, and perhaps talk your parents into doing the same. (If only E*Trade, Ameritrade, Share Builder and Schwab had registries for baby showers!)

Seriously, though, when I was little the first thing my folks got me was a passbook. The second was savings bonds.

These were yawners and

never encouraged me to do anything or follow anything. Parents, if you want to teach your children about money, buy them stock. C

Costco member Jim Cramer is host of Mad Money on CNBC and Jim Cramer’s Real Money,

a nationally syndicated radio program.

The Costco Connection

JIM CRAMER’S Stay Mad for Life: Get Rich, Stay Rich (Make Your Kids Even Richer)

is available in Costco warehouses and at costco.com.

Costco offers an easy way for parents to set up custodial savings accounts and education savings accounts through ShareBuilder. For details, go to costco.com and enter “online investing” in the Search box.