Good Investments for Kids

The questions that harass every individual with surplus money are whether to invest or not, and what are the high-return asset classes. For kids, it is highly recommended that they should learn how to invest at their age.

The saying, 'Early to start is early to finish' is not applicable to the financial world. A child must start early only for the purpose of staying longer in the market, as can be seen from the example of investment guru, Warren Buffett.

Investments require time, efforts and money. The principles that go into each decision of investing are the same. Whether it becomes fruitful or not depends on how extensively it was researched. Whether it was the first opportunity that came to the investor, or he made a deliberate decision after considering the well-researched information also counts a lot.

The latter option always reaps better rewards. The most basic principle of investing for your child to learn is to consider the value of an opportunity. It is important to understand that the money invested in an instrument is not available for another, however profitable it is.

This is called the 'Cost of Opportunity.' That is why it becomes critical to invest wisely in the first place.

Similar to every other good habit, the habit of taking care of available money needs to be cultivated and so is the habit of making prudent investments. It is the responsibility of the parents to see to it that their children acquire this skill. Here are some options you can consider.

Next to the piggy bank, opening a saving account for your kid is the most economical way of encouraging him or her to learn the value of money and savings. What matters most is not how much he or she saves up and earns interest, but how consistently he or she deposits with the bank.

How much mental space the kid allows his or her account to occupy, is of importance and will be apparent from his or her transactions. A sharp-eyed parent can learn a lot from the pattern of the transactions.

Encouraging a child to investigate the stocks of companies that appeal to him or her, is a way of teaching him or her to look for investment opportunities. Owning a few shares of companies like Disney or McDonald's will constantly remind him or her about the investment, and may encourage him or her to keep on searching for other investments.

Treasury bonds are very stable instruments, as their value is not influenced by market forces. These bonds are issued by the Treasury Department and are backed by the U.S. Government. After they are issued, they take years to mature to their face value.

They represent long-term investment and are ideal for children, as they can receive the maturity amount when they are grown up. These bonds, once bought, can be handled, counted, and looked after by the kid as if they are real money which is a lesson in itself. They are also low-risk.

This is also known as a 529 plan and are established to provide for a child's education costs. Each of the 50 states provide at least one such investment plan. These instruments come with benefits such as tax deductions and deferments.

You have the option to choose from a savings plan or a prepaid plan. Setting up your kid's 529 plan keeping an eye on the future college fees, is an opportunity you cannot miss out on.

These are issued by banks, and are promissory notes that can be purchased. Unlike treasury bonds, they can be cashed in as and when required, to realize its value and the interest accumulated. If the date of withdrawal of money is before the maturity date of the certificate, then it may invite a penalty.

In today's ever-expanding financial world, there are no dearth of opportunities to invest. For kids, as it is for every investor worth his salt, it is important to learn to differentiate between a high-paying risky investment and a safe one.

Disclaimer: This item is for reference purposes only and does not directly recommend any specific investment choices.