People who use this “Bank of Mom and Dad” approach say that to reinforce the message it’s worthwhile to provide written monthly statements, and to make each weekly or monthly interest payment in cash. That’s much more real than figures on a page.
Stock market “investing” can be handled in-house the same way. The child can be given an imaginary sum to invest in stocks of familiar companies, like McDonald's (Stock Quote: MCD), Nike (Stock Quote: NKE) or Mattel (Stock Quote: MAT). Then you can help the child track the stock online.
As with savings, the investing lessons are reinforced best if real money changes hands, so the child experiences gains and losses. If McDonald’s moves from $56 to $57, you can add $1 per share to the child’s piggy bank, then remove it when the price falls. Updating accounts once a week is enough.
To demonstrate both the risks and rewards of active trading, the child can be encouraged to shift from one stock to another, taking profits when the stock seems to have peaked and cutting losses after it falls. The child should be encouraged to keep abreast of news items on the stock. They can be found under “Latest Headlines” on the stock-tracking page.
Finally, the child’s results should be measured against a benchmark like the Standard & Poor’s 500. A separate fund can be invested in a pretend purchase of an S&P 500 index holding like the SPDR exchange-traded fund (Stock Quote: SPY).
This should be a buy-and-hold investment, to show how this approach often works better than the in-and-out trading the child might do with individual stocks.
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