Start Them While They’re Young

If your youngster shows an interest in investing, it has never been easier to get him or her started regardless of age.  Once an individual reaches the age of majority (eighteen years in most states), he or she may have an investment account registered solely in his or her name.  Youngsters under the age of eighteen are not permitted to have their own brokerage accounts.  However, several ways exist for parents to introduce interested youngsters to investing. 
Dividend reinvestment plans (DRIPs) may provide an interesting investment vehicle for kids.  Many child-familiar companies offer DRIPs-Walt Disney, Mattel, just to to name examples.  Since many DRIPs permit very small investments, the programs are a good way for youngsters with limited funds to start investing in the stock market.  Through Sharebuilder, youngsters can have an account setup for them to buy stocks in specific dollar amounts automatically.  Don’t have $300 to afford a share of Apple stock?  No problem, Sharebuilder offers fractional share purchases.
If you decide to establish an investment account for a minor, consider carefully how you want the account registered. If you choose to have the account in your own name, you will be responsible for taxes on the account.  The good thing is you will also retain complete control over the account for as long as you want. 
An alternative is to set up the account as a Uniform Gift to Minors Account (UGMA) through reputable brokers like Rydex, Fidelity and Cam Trading. Funds in the account are in the minor’s name and Social Security number and are considered to be owned by the minor.  Dividends paid on the account are taxable, most likely at a preferred tax rate.  The adult custodian is responsible for the account until the minor reaches the age of majority.  Parental control is lost at the age of majority, which can be seen as a downside to UGMAs. 
Lastly, certificates of deposit and savings bonds are okay investments, kids should own stocks or stock mutual funds.  Risk is the last thing your child needs to worry about in an investing program.  He or she needs to capitalize fully on the power of time in their investment program as they have the advantage of time working for them.