How to Give Stock to your Children

Teaching your children about financial systems in the world work will give them a better appreciation of how the world in general works. As we all know, money tends to make the world go round, so starting education early by giving your children their very own slice of the pie. Kids often have more than enough toys, so why not teach them a thing or two about how the world works?

Contribute to a 529

I think one of the best ways to give stock to your children is to contribute to their 529 or ABLE accounts. Many parents have a few hundred or a few thousand dollars invested for their kid’s future, and they will appreciate every spare dollar that can be invested on behalf of their children. If you intend to give thousands of dollars to a special child, you can set up a 529 account by yourself and name the child as the beneficiary, but for most people that is an excessive gift.

A more practical way to contribute to a 529 plan is to ask parents if they have one set up. If they respond in a positive way, you may request them to invest your $10 or $30 gift on your behalf. This sounds like a pitiful gift, but it adds up over time. I have three wonderful children, and they both have their 529 plan filled with all the cash they have received as birthday and Christmas presents.

Their accounts each have a few thousand dollars in them currently and I am sure it will bloom into even more in the future. This kind of money is critical to giving your children the best possible start in life, it can help pay for college, a first car or anything else a young adult needs to get on their feet.

Fractional Shares

If the 529 plan approach is not for you, think about giving a share of the child’s favourite stock (or an ETF) through a fractional share platform. There are several websites dedicated to this option.

Websites like Stockpile offer the ability to buy fractional shares in custodial accounts. Stockpile charges about $0.99 to buy a share. Both platforms make it easy to set up a custodial account for a child. Plus, you can buy stock shares or ETFs (which give the children a more diversified portfolio). Teaching your children about the value of a diverse investment portfolio by giving them a first-hand experience with stocks can be invaluable for their future.

I have found that this approach helps children get even more invested in their favourite company’s. Encouraging them to look up the market data on them, wanting to understand how a company’s value changes and how other things in the market can affect the value of a stock.

DRiP Plan

Another angle you could take when looking to buy shares for your children is to buy a Dividend Reinvestment Plan (DRiP) directly from a company. FirstShare has a curated list of great companies that offer fee-free DRiPs, and they make it easy to set up a custodial plan for kids.

To set up a DRiP, you must buy a share of the company stock, and then sign up for automatic reinvestments of dividends. Plenty of child-friendly companies like Hershey’s and Hasbro offer no-fee DRiP plans for shareholders which can be a great way to engage your children in the exciting world of finance.

Ultimately, there are some great options out there if you want to give your children a gift that will serve them into adulthood. From a 529 plan to shares in a company you can create engaging ways to inspire your children to learn about the movements of the markets. This will definitely open doors for them in the future when they need that money for the first few steps into adulthood so investing that birthday money now can pay off later, big time.