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Encourage a stock buy if your child shows interest
Although I am a huge believer in the need to invest in the stock market, I do not believe that all Americans need to invest in individual stocks. Year after year, research shows me that the most consistent route to success in the markets is buying a portfolio of low-cost, broad (i.e. very diversified) index funds. That said, if your child expresses an interest in buying a stock, or several stocks, I think doing so is a terrific way to teach them how the market works, how companies work and how American business works. It is a terrific way to encourage them to read the newspaper. And it is a terrific way to introduce a child who is interested in finance to all the different careers available in that sector.

It doesn't even have to be a huge capital commitment. There are many ways to buy a share or two of a company in which your child is interested. My favorite is Sharebuilder.com, which allows the purchase of even a piece of a single share of stock with fairly low fees (should your child decide he wants to buy Berkshire Hathaway, for instance, Warren Buffett's company, all he may be able to afford is a fraction of a share.) Any money sitting on the sidelines is diverted into a money market fund at a good rate of interest.

Which stock to buy is completely up to your child. My son expressed an interest in Forever 21 after he heard the disk jockeys on his favorite morning radio program (the one we listen to on the way to the bus) rave about how you could buy designer knock-offs at fabulous prices. We checked it out. But yours may be interested in the company that makes their favorite food, owns their favorite sports franchise or produced a favorite movie.

Once you own a share or two, the idea is to follow it. That means reading the newspaper to see what is being said about the company and the people who manage it. It means looking at the stock tables to see whether the price is moving down (compare these movements to how the overall market is doing and talk to your children about why). It means going online to check out what the analysts who make a living following these companies, meeting with the CEOs and predicting whether they'll go up or down are saying. And ultimately, hopefully, it means selling those shares and making a profit that can be plowed into the next great idea. That's how stock investors are born.

Now you're ready for Step 4: Teaching your children the importance of work

Get all the steps to raising money-savvy kids

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