The season is upon us when parents threaten their kids with spies who report directly to Santa Claus and children add new toxic plastic molds of superheroes to their mountains of toys. Yes, it’s time for
So why would I – a guy with no kids – be an authority on what to give kids? Because as I discussed last week, I have my own blog so I can spout whatever nonsense I want! But, this nonsense has met the approval of my nieces and nephews parents, and the kids aren’t too horrified by it either. In fact, I think the older ones actually like it.
Instead of adding to their ever growing use-once-and-never-touch-again toy pile, my wife and I have instead opted to start buying them stock. Yes, the stock market stocks. Now, instead of owning a piece of cheap crap the company produces, they can actually own a part of the company peddling junk everyone else!
In the past it was hard to gift stocks directly to kids, instead you’d give cash to the kids and hope they’d give it to their parents before pocketing it, then hope the parents would take the extra step of transferring the money into their 529 or ESA educational savings plans. I gave it about a 25% chance of actually working. Now, innovative new companies have come up with an easier way.
How to Give Stocks to Kids
It sounds wrong typing “how to give stocks to kids”, like I’m trying to teach you to smuggle some illegal substance into their lives, but this really is a good thing! For the past two years, we’ve used Stockpile to facilitate the gifts. Here’s how it works:
- Buy a stock gift card online or in a store
- Give it to the kid (laugh as they try to figure out why they got a plastic card instead of a cool toy)
- Have the parents set up a custodian account
- Explain to the kid what the stock market is (don’t let them watch Wolf of Wall Street)
- Kid can pick what stock they want to buy (Stockpile offers over 1,000 stocks and ETF’s)
- Kid can easily check their account with an app on parents or kid’s phone and trade stocks
The Upside of Stockpile to Buy Stocks
The best part of Stockpile is how easy it is to set up and use. It takes away most of the pain of trying to figure out how the hell to buy stocks for kids. It also allows fractional ownership, which means the kid doesn’t need $1,000 to buy a single stock of Google, but can instead just buy a fraction of the share based on how much money you give them. They only charge 99 cents to trade, but I’d recommend the Warren Buffett method of buying one stock and holding it forever.
You can buy E-gift cards in almost any amount or buy a physical gift card worth $25, $50 or $100. We stick with a physical gift cards as it does them something to open. You can either order physical gift cards online or find a participating store. I usually find them at Lowe’s or Target in their “gift card towers” stuffed somewhere between Red Lobster and Best Buy.
I think the best part of buying stock is it teaches children how to start investing. Their mindsets change from simply being a consumer who buys crap from companies to being an owner or investor who can now make money with their money. I started buying gold when I was 14 and purchased my first stocks during the dot com bust with my dad in high school, both which lost money and taught me valuable lessons on investing.
We buy them gift cards for their birthday ($25) and Christmas ($50), so another great upside is money quickly builds up over time, especially when invested. When the youngins are ready to go to college, their stashes at $75/year for 18 years could be $1,350 without any stock market returns, or double that if the market decides to cooperate. It’s much better than the rotted toys they would have instead.
The Down Side of Stockpile to Buy Stocks
There are some downsides to purchasing stock with Stockpile, most notably that you lose the tax benefits of investing in a tax preferred college account (ESA or 529). Where the tax preferred college accounts don’t make you pay any capital gains, the non-tax preferred stock accounts don’t provide the same protection. If the child makes more than $1,050 of gains through the sale of stock or dividends, they’ll need to file a return and the amount over $1,050 will be taxed at their parents’ rate.
But seriously, if your kid is parlaying $25 stock gift cards into $5,000 annual capital gains, you should probably just let them continue and hire an accountant to figure out the mess. Most kids will stay under the $1,050 amount and not worry about taxes.
The other downside is the extra fee you’ll pay when purchasing the gift cards. Stockpile tacks on a $4.95 per card fee that you’ll pay when purchasing, but at least they do it that way rather than taking away $4.95 when the gift card is activated.
My Stockpile Conclusion
My Aunt used to always buy us the coolest Christmas gifts and for a while she started buying US Savings Bonds. They looked pretty cool when we received them, but my parents explained that we shouldn’t cash them in until their full seven year maturity so they’ll be worth the full amount. It really paid off when I went to college and cashed them all in to help defray some of my college expenses.
I love the idea of paying that forward to our eight nieces and nephews. Sure, it’s not as gratifying as watching them tear into their dream toy, but usually my other childless brother buys the coolest presents anyway, so now I compete from a different angle. I love to hear their parents explain to them how the stock market works, hear which stocks they decide to purchase and then talk to them about how their stocks are doing.
My eight year old nephew loves planes so he bought Boeing, while another nephew is a big fan of Minecraft (which I always confuse with Minesweeper) so he bought Microsoft, who created Minecraft. As for my nieces, one bought Nike as she’s into the athletic thing, while another bought Disney because she loves their characters and movies. The younger kiddos don’t really have much input yet, so they usually end up with Disney as well.
The best part is two of the stocks – Boeing and Nike – have both outperformed the market since they bought them and Boeing has nearly doubled in price! I need to start taking advice from them… but if they ever ask me I’ll continually push my favorite stock, Apple.
Overall, I recommend Stockpile. There are some other services out there, but this is the first I’ve tried and the experience has been pretty seamless. Also, I didn’t receive any payment for my endorsement of Stockpile, I’m just a happy customer.