Shares for Kids

“Dad, do you own shares in … Woolworths?”

“Yes.”

“What about Coles?”

“Sure do, mate.”

“What about … what about ... JOHN DEERE?” screamed my five-year-old, his eyes bulging.

“Oh yeah!” I yelled, and then we high-fived.

Listen, as a father, a finance nerd and a farmer, that moment was a bloody royal flush.

It does not get better than that.

These days my portfolio is basically made up of both local and international index funds:

A couple of ultra-low-cost funds hold literally thousands of companies (well, a sliver of each), including the biggest companies on earth. In other words, you name it, and chances are we own it. (What’s more, when my kids get older and they ask me about the latest hot stock, the automatic adding nature of an index fund will allow me to say, “Yeah, I own that too”).

My kids have nailed the working, saving, spending and giving parts of the Jam Jar Strategy. Now I’m slowly introducing the idea of investing some of that money into shares, and learning about compound interest.

And it’s not just my kidlets.

This week I heard from Will, who asked:

“I am five years old and I want to buy some shares. Am I able to buy a share these days where I actually get a share certificate or something in the mail?”

Well, what I would tell Will is the same thing I’d tell my own kids (and what I’m actually doing with them):

As a parent you can buy shares on your kids’ behalf (in your name, but as a trustee for your child, via an online broker) and then transfer the shares to their name via a simple form when they turn 18, without incurring capital gains tax (CGT), as there is no change in beneficiary.

What shares should kids buy?

Well, when I was a kid, my father decided to pay me my pocket money via one share in BHP.

He said: “You now own a share in one of the biggest companies on earth, and they share their profits with you.”

I never got a share certificate … or the actual share come to think of it!?

Yet that day changed the course of my life.

So for kids I’d seriously consider buying either an Aussie shares index fund or an international index shares fund -- or better yet both. That way they’ll own thousands of the world’s biggest companies. Then parents can print out a list of all the companies they own, and put them on their wall: just for the bragging rights.

Tread Your Own Path!

P.S. Want to really compound the gains? Make sure it’s money your kids have earned themselves fair and square.