Giving stock to kids? Better make sure it comes with good instructions.

Have you ever stayed up really late the night before a holiday or a birthday, assembling some impossibly complicated toy that comes with indecipherable instructions? That’s basically how kids feel when you buy them stock. 

If you’re thinking of giving individual shares in a hot company as a gift this year, you might first want to consider this cautionary tale from financial educator and certified public accountant Maya Corbic. She wanted to get her two teens hyped up about the family business by buying them shares in companies they knew, like Disney and Apple. She printed out the logos of the companies and wrapped them in boxes. “The reaction was not like, ‘OMG, I’m a part owner of Disney!’” she says. “It was like ‘OK, thanks,’ and that rolling of eyes.” 

Corbic has since shifted to buying her kids index funds in a custodial brokerage account, and she shows them the ups and downs on a computer screen. 

As the owner of the Dinarii Financial Education Academy, author of “From Piggy Banks to Stocks: The Ultimate Guide for Young Investors” and face of the Instagram account, Corbic doesn’t want to give the impression to her own kids or others that they should try to be stock pickers. Instead, they should be looking at their time horizon and aiming for growth. 

“Time is their biggest asset,” Corbic says. “ETFs are great investment vehicles. They give automatic diversification and have low fees.”

Here are three questions you should ask yourself before purchasing shares and wrapping them up. 

What educational point am I trying to get across? 

Most people who purchase stocks for kids want to teach them basic investing lessons by giving them some skin in the game. The kid gets a sweet paper certificate (which you can request through your brokerage) that they can hang on the wall, and you can all have fun together tracking the stock ticker so they can see their riches grow. 

Sounds fabulous, but what about the rest of the education they need to handle the investment? What they really need to know about individual stock purchases may be even beyond the knowledge of well-meaning relatives. What is the stock’s basis? How do they convert that fancy paper into a tradable security? What are the tax consequences of selling? How will the stock holdings affect financial-aid calculations? 

And what moral lesson is there if they strike gold — or strike out? It’s complicated either way. There were plenty of meme-stock kids over the past few years who cashed in big, like the fifth-grader who made $3,200 on the GameStop stock he got for Kwanzaa. For every one of those, there’s someone like Ramit Sethi, who took the scholarship money he won for college and blew it on bad stock purchases. Sethi became a personal-finance guru preaching the value of index funds, but what will become of the get-rich-quick kids? A couple thousand dollars is a nice holiday haul, but the recipient is no more likely to become a billionaire than to end up a gambler.

Corbic’s kids lost big on Roblox, which she bought for them at its initial public offering in 2021: It opened at $64.50 and is now at $41. But they are reinvesting the dividends and holding onto it, despite missing the peak of $134. “We all spend money on stupid things. This was my educational/stupid thing.” she says. 

What account is best to use? 

Children under 18 can’t legally own stock in a brokerage account of their own in the U.S. Where you hold their stock matters: If you’re buying stock for a child who is not your own, transferring the assets can get complicated. 

The best place to invest for — or with — a young person with a long time horizon is in an account where the growth is tax-free, which means a Roth IRA for minors if the child has earned income, or a 529 college savings plan. It might not be as exciting, but as Corbic found with the reaction from her kids, they aren’t all that likely to be excited anyway. So why not be efficient about it? 

“If you’re trying to show the importance of investing, tell them, we put $100 in here, and you could still let them choose the investments, kind of,” says financial adviser Thomas Kopelman, co-founder of AllStreet Wealth, based in Indianapolis. 

If you’re thinking about making a gift of stock you already own, like employer stock or other stock in your portfolio, Kopelman advises against transferring it to a child. It would be more tax efficient to donate highly appreciated stock — his clients favor donor-advised funds, which are brokerage-like accounts for charitable donations — and then write a simple check as a gift. 

Will I be there to help when they want to sell? 

Another important element is time. Custodial accounts turn over to the control of the beneficiary at 18 or 21, depending on the state and the type of account. You have to make sure that you’ve imparted enough investing knowledge for your gift recipient to handle things from that point on. That includes knowing when to sell. 

I was given stock for my college graduation many, many years ago. It came in a card without any further help. By the time I went to cash it in to help with the down payment on my first home, the gift giver had died. I took the stock certificates to a broker, who asked me what the basis was for the shares. I had no idea back then what that even meant. (I started my career as a film critic, not a financial pro.) 

By then, I was a taxpaying adult, so I owed capital gains. We had to find the price of the stock on the date of my graduation and work from there — even though it probably cost my benefactor less because it was stock from the company where he was an executive — and hope it was all good enough for the IRS. In the end, it worked out to less than $1,000, and to be honest, it would have been much easier to have received a check. 

“Give stock, but educate them about it,” says Corbic. “Don’t just give it to them and not let them understand it.” 

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