Investing for minor

[hausfrau]

My DD has a good amount in savings bonds (she is five) earning a little over 1%. I'm wondering if it would be prudent to invest those in the equities on her behalf. We would just transfer the money to our taxable investment account.

I can't imagine what a kid or teenager would use the money for, maybe a car or a class trip? I think most likely the money would be used for college. For FA purposes, the money would be better off in our name anyway. If she goes to a state school we will probably be full pay though.

We have no intention of pilfering the money from DD, btw. I would just like to make the most prudent decision on her behalf.

 

[Meadbh]

I think that moving the money to your account would send the wrong message to DD. When I was her age, I was aware of my bank account and was excited when I could add to it. Having one's own account is a huge learning opprtunity. Having it taken away, even by parents with good intentions, risks a lack of trust. My suggestion is that you help DD to learn about the basics of compound interest and get her input.

 

[hausfrau]

DD does have a bank savings account and an allowance and I do teach her about $. She is only 5 yo though and she mostly likes going to the bank to get a lollipop.

My thought is maybe setting up a fund that is different than something we own so we she can track it when she is older and it doesn't get mixed up with ours.

 

[Running_Man]

Why not set up a custodial account on her behalf?

 

[hausfrau]

Why not set up a custodial account on her behalf?

I thought I might do that, but I thought it might affect college financial aid down the road if we needed it. I realize that I'm thinking way off into the future here.

Maybe that's a better idea though. She often gets cash gifts for birthdays and holidays and she's getting no interest on her bank savings account. Maybe it'll be a good teaching tool in a few years.

 

[Mulligan]

Remember that if you continue holding the savings bonds to the full 20 year maturity the bond will automatically double at that point bringing the annual rate to around 3.6% yearly. I say that only that if you do nothing, it won't stay 1% forever.

 

[hausfrau]

Thanks for all the input. I never even considered a custodial account and now I'm learning a lot about UTMAs in the archives. I agree about the trust thing. I'd never keep anything a secret. It's her money. I never had this kind of money growing up, so I have no frame of reference.

Maybe I'll just keep things as is for now.

 

[Sue J]

I agree with keeping any funds in your daughters name. Even at age 5 she will understand owning them herself, even if you are the custodian.

When our son was young, maybe 7 or 8, my Dad bought him a share of Disney stock. At the time he got a nice colorful stock certificate. He understood enough to know how to look up the price and see what it was worth. He received small dividend checks and later there was a stock split so he had 3 shares and all of them are worth a lot more now.