Special Report: Kids and Money

By CBSNews.com staff CBSNews.com staff

September 4, 1998 / 4:50 PM EDT / CBS MarketWatch

The mother was desperately seeking advice in an Internet chat room. She wanted to start her 9-year-old daughter in the market, but wasn't sure giving her a Disney stock certificate was the right way to go. Sound like a little much for a fourth-grader? It shouldn't.

Many financial planners recommend parents introduce their kids to the stock market around age 10. Some even say they should start kids at age 7.

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The problem is, parents often don't talk to their kids about money, let alone investing, leaving the kids to struggle on their own. On the Web, the main question in kids' investment chat rooms is, "How do I start?"

"A lot of times parents are learning these lessons alongside their kids," she said.

Financial experts agreed learning with kids is OK. What's most important is to get them started. And if the bull market is over, this is the perfect time, insisted Deena Katz, president of financial planning firm Evensky, Brown, Katz & Levitt in Coral Gables, Fla.

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Part of the issue is that parents don't know themselves, said Stein Roe Mutual Fund spokeswoman Wendy Rauch."The bull market's good for nobody as realistic market conditions," she said. "What people need to do is anchor back to times like 1973, 1974 (a bear market). That's a good illustration for kids."

"The most important thing is the way you introduce them to the market," said Gregg Fidan, a 22-year-old who launched Young Investor Web site. If kids know they're in it for the long-term, they won't treat it like a casino, he said.

But how do you get kids who can't see past Christmas thinking about their futures? Putting money in the most basic interest-compounding account is a good first step, recommended Michael Searls, president of Summit Financial Products in Parker, Colo. That way kids can see on paper that their money's growing each month.

Ric Edelman, president of Edelman Financial Services in Fairfax, Va. and one of the country's top financial planners, said parents should start kids with $500 to $1,000 and use discount brokers to place orders.

Most importantly, he said, ids should invest in companies, not "buy stocks." "There's a big difference," Edelman said.

A popular way to introduce kids to stocks is by getting them in on companies they know, like Disney or Toys 'R' Us. But financial planners are split over whether this is the best way to go.

Katz argued against it, saying kids' investments needed to be "widely diversified" so they're taught early on about mixing up their finances. "Any idiot would know not to put all the rocks in one basket and have them fall out," she said.

But Searls went to bat for common stocks kids recognize because, for example, Disney shares come with Mickey Mouse statements and William Wrigley Jr. gives gum. "There are benefits to owning stocks that kids can relate to," he said. "We're not raising a bunch of little Donald Trumps here."

Searls shook his head at putting children's money into mutual funds because "It's very hard for kids to understand the concept," he said. "You could lose kids here real fast."

But Rauch lobbied for Stein Roe's Young Investors Fund, which made 28 percent from late April 1994 to the end of July, beating the S&P 500's returns by 1 percent.

The young investor fund sends shareholders newsletters and annual reports that use common words and explain investment terms. The fund focuses on compounding returns and requires 50 percent to 65 percent of the stocks to affect children's lives in some way, Rauch said. It invests in companies like Disney and Johnson & Johnson, but also holds stock in companies like Ericsson, which makes teen-popular beepers and cellular phones.

Written By Tiare Rath