Teaching Kids About Investing

I’m interested in setting up a small account for my kids -- ages 11 and 13 -- where they would learn about investing in stocks, bonds and mutual funds by actually trading. Where should we go to get started?

Opening a custodial account with a brokerage firm is a great way to teach your kids about investing. You can make investing decisions together, and money in the account may be used for anything that benefits your children until they reach the age of majority (21 in most states, 18 in a few) and they take control of the account themselves. A custodial account also gives you access to the brokerage firm’s research, which can be a good way for you and your kids to learn about stocks.

If you already have a brokerage account, ask your firm about the minimums and fees for a custodial account. Having both accounts at one firm will make record-keeping easier and could give you a break on some account expenses.

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Several firms make it easy to set up a custodial account, even if you aren’t already a customer. For example, TD Ameritrade offers custodial accounts with no fees or minimum investments; you’ll pay $9.99 for each online stock trade, and $0 for 101 exchange-traded funds and no-transaction-fee mutual funds.

Charles Schwab has a $100 minimum to open a custodial account, then charges its standard fees for trades: $8.95 for each online stock trade, and $0 for Schwab ETFs and OneSource funds.

Scottrade has a $500 minimum initial investment and no account fees; online trades are $7 each, or $0 for no-transaction-fee mutual funds.

Many parents like ING Direct’s Sharebuilder program. There’s no minimum and no maintenance fees, and if you sign up for regular monthly investments through the automatic investment plan, you’ll pay $4 per trade.

Custodial accounts for children younger than 19, and full-time students younger than 24, are generally subject to the kiddie-tax rules: The first $950 of the child’s investment income is tax-free; the next $950 is taxed at the child’s own, low rate. Any investment income that tops $1,900 is taxed at the parents’ higher rate.