Should We Start Investing on Our Children’s Behalf?

Buying stocks for kids, grandkids, or niblings could pay off when they’re older.

Photo credit: JD Hancock, CC BY 2.0.

One more investment-related story for this week, from our very own Ester Bloom:

The best way to set your kids up for financial success is one most people overlook

When my husband was born in the early 1980s, his uncle celebrated by buying him five shares of Disney stock for a total of $5. The purchase was motivated by emotion as well as by practicality. “I clearly remember reflecting that Disney stock was particularly appropriate for a baby,” his uncle says.

The bet turned out to be a good one. My husband and I just sold the stock for $36,000, more than I have sometimes made in a year.

First of all, going from $5 to $36,000 in roughly 35 years is way more than an annual 6 percent return. It’s more like a 29 percent return, according to those online investment calculators—which is to say, that investment returned 29 percent every year for 35 years. (It probably didn’t; like most investments, the return level fluctuated. But still: there were some very good years.)

Ester writes that, although today’s investors will have to make a larger initial investment and might not get Disney-in-the-1980s returns, “gifting stock certificates to the children in your life” is one way to help them prepare for the costs of adulthood.

I became an aunt last year, and although I’ve thought and written about contributing to a 529 plan on my nephew’s behalf, so far all I’ve given him are onesies and books. Maybe stocks make sense. How much does one share of Disney stock cost today? Internet says… $109.72. Wow. Okay. That’s, like, eight books.

I’ll make one more comparison, just so we understand what’s at stake with stocks: if that $5 investment had earned a 6 percent return for 35 years, Ester’s husband would have received $38.43. If I bought five shares of Disney stock today at $109.72 and earned a 6 percent return for the next 35 years, my nephew might have $4,216.59.

But Sarah Beth Kaye, as you might remember, saved $1,035 over six years for her brother’s college education by collecting loose change in a jar.

How Saving Pennies Helped My Brother Go to College

So think strategically. As Jay Sun reminded us when I interviewed him about his finances: “If you want to amass a lot of money through investing, you need to invest a lot of money.”

I still want to text my sister and ask if I can buy my nephew some stocks. It feels hopeful and exciting, like anything could happen. I could help him out, make his life better, literally invest in his future.

Have you bought stocks for the children in your life? If not, are you now inspired to?

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