Author: Beck

Stock for children is a great introduction to investing

My daughter received $50 from her great-grandfather for Christmas and we all agreed that there was absolutely nothing left on her list that she really needed. I pitched the idea of buying a share or two of stock with the money so she could watch it grow over time. I think the idea of buying stock for children is a great way to introduce them to some basic investment concepts.

Besides, when I my kids age I thought the idea of owning stock was cool!

THE BEST STOCKS FOR CHILDREN
The best stocks for children are not necessarily the best stocks for average investors. Kids need to know a little something about the company. It could be their favorite tennis shoe brand (maybe Nike), maker of their favorite gum (think Wrigley), or even the maker of their beloved XBox (Microsoft).

I offered up a short list of kid-friendly stocks that I thought would provide good growth and dividends over the long term; nothing too speculative for my daughter’s first pick. As I suspected, she settled on Disney, and we were off to open a ShareBuilder trading account.

HOW TO INVEST IN STOCKS FOR CHILDREN AT SHAREBUILDER
We decided to open a custodial investing account with ShareBuilder for a couple reasons. The main thing I like about Sharebuilder is that you can buy partial shares, so by committing $50 for her first stock purchase, she should be able to buy around 1.4 shares of Disney stock (trading around $32). If trading with a more traditional broker you often are forced to only trade in full shares – meaning kid-friendly stocks like Google and Apple would be off the table considering their high per-share price.

I decided to keep this money out of the Educational Savings Account, and her 529 College Savings Plan, because it may not be used for educational purposes down the road. Who knows…maybe this will buy her a car in ten years (with a little help from Mom and Dad, and a few more contributions from her Papa).

I can’t wait to show her “DIS” in the stock report of the newspaper and begin explaining what happens when stocks go up and down, etc. My wife is convinced I am WAY more excited about buying stock for our children than the kids are! She’s right, because no one ever explained these investment concepts to me, and what a leg up I would have had to have someone “coach” me on such financial matters a young age.

Let’s just hope I don’t have to teach them about losing money. Actually, that’s a pretty good lesson, too, and a good reason to get the kids involved when buying stock for children. They certainly need to know their are risks associated with investing in stocks.

The debt snowball plan

THE “SCARED STRAIGHT” SNOWBALL DEBT REDUCTION PLAN

Basically, the plan is to make minimum payments on all your debt and pile your remaining get-out-of-debt money into a high-yielding savings account such as the one offered by Smarty Pig. When the balance in that savings account exceeds the balance of your smallest debt by 30%, the snowball plan calls for you to transfer the money into checking and eliminate that smallest debt.
As Trent points out this is probably not the smartest (mathematically) way to approach the debt snowball, but for those of us with somewhat shaky jobs, or in one-income families, it makes for a better night’s sleep to have a few thousand in savings at any given time. I’d gladly give up a couple months worth of interest to have a pile of money in the bank at the ready.

I may make one slight variation to his plan and preserve a $1,000 savings threshold – so when my savings balance equals my smallest debt, plus $1,000, I will bring the savings balance down to $1,000 and pay off the debt. Another idea to consider if you have several smaller debts (like I did in the beginning) would be to group those debts together to make one larger debt.

For instance, I had three debts under $500. If I was using the “Scared Straight” plan back then I would have grouped them into one $1,300 debt and used that as my target savings amount, otherwise you’ll be making several transfers out of your high-yield savings account to pay down the debt snowball, and it could cause a fee to be assessed on your savings account.

THE ORIGINAL DEBT SNOWBALL PLAN

The original debt snowball plan was made popular by Dave Ramsey in one of my favorite personal finance books and New York Times bestseller, The Total Money Makeover. If you haven’t read the book, I highly recommend it.

Convert your monthly budget items to annual expenses

I’m currently reading Stay Mad for Life, the latest offering from CNBC and TheStreet.com money manager, Jim Cramer. By the way, I personally think this is Cramer’s best work as it focuses on all areas of personal finance, not just stock picking. I’m not a huge fan of Cramer the television personlity, but this book is pretty good.

In the early chapters of his book, Cramer discusses a unique way of budgeting that carries monthly expenses out to yearly outlays. It got me to thinking. My wife and I are big soft drink drinkers. Besides them not being healthy, I wondered in what other ways these things were affecting our lives.

$360 A YEAR ON COCAL COLA

In a given week we probably go through 2 twelve-packs of Coca Cola (or Diet Coke, depending on how good we are being, or not being). Our local grocery store generally offers a 3/$10 deal making these close to $3.50 each with sales tax. That comes out to $7.00 a week on soft drinks. Convert that to a 52-week, annualized expense and it comes out to about $360 a year for our family budget’s food category. That is nearly a dollar a day!

Over the next couple days my wife and I plan to take a look at our family budget and annualize all our expenses to determine what’s costing us the most over the course of a year (can you imagine what the cable bill looks like…yikes!).

By magnifying these monthly household expenses by 12 it really helps to illuminate those categories of the budget that need to be trimmed. Over time, we plan to create family budget spreadsheet to track all of these expenses (we already budget cash expenditures each month using Mvelopes – an online envelope budgeting system), and I’ll now have an “annual” column to calculate as well.