For the record, I don't have any children…yet…
But when I do, I intend for young Jack and Jill to grow up with a firm respect for money. It doesn't matter if they have a lot, or a little – I just want them to be comfortable.
Now, obviously, I'm biased because I work in the share market. But I think one of – if not 'the' – best ways to not only grow wealthy but educate young ones about their finances is by investing in the share market.
There are many benefits. For example, the share market has outperformed all other investment classes over the long-term (yes, even property). And you can invest just a few hundred dollars to get started. You could also set up a daily, weekly, monthly or yearly debiting system that transfers funds straight into a brokerage account for you or your children, so you don't even have to think about it.
You can even use events like Christmas, New Year's or birthdays to make contributions to your child's account. For example, this Christmas, instead of buying your one-year-old child $100 of presents they'll likely fail to remember in 12 months, why not put $50 into a bank account and save up until that money can be used to buy some shares.
By age 18 or 21, it could amount to a first car or – later – towards a housing deposit. Dependent upon how long the money sits in shares, the amount you put in, and the better the investment returns, your modest sum of cash will accelerate as the magic of compounding does its bidding on your behalf.
5 dividend shares I'd buy my kids this Christmas
If I were starting from scratch today, I'd likely buy my kids some dividend-paying shares. Dividends are a cash return, usually bi-annual or annual, on your investment in a company's shares. Sometimes, you can set up your account so that dividends can be automatically reinvested into new shares, known as a dividend reinvestment plan (DRP). Alternatively, you can receive the cash in your brokerage account that can be used to buy other shares. Dividends are not guaranteed, but you can think of them as similar to interest on a term deposit or rent on an investment property – just better, in my opinion.
Here are five dividend shares I'd buy my kids this Christmas:
- Telstra Corporation Ltd (ASX: TLS). Everyone knows Telstra Corporation, even your kids. The company's share price will fluctuate over time, but Telstra's dividend appears reliable. It's expected to pay a 5.9% fully franked dividend over the next 12 months.
- SEEK Limited (ASX: SEK) is Australia's leading jobs portal, but it is also growing overseas. Competitive risks persist, but the $4.8 billion company is well-run and its 2.5% fully franked dividend yield could grow healthily over time.
- Wesfarmers Ltd (ASX: WES) is the owner of Coles, Bunnings Warehouse, Officeworks, Kmart and more. With over 100 years of experience, Wesfarmers' current 5.4% fully franked dividend yield appears sustainable.
- Retail Food Group Limited (ASX: RFG) is the name behind food and coffee businesses like Gloria Jeans, Donut King, Cafe2U, Crust Pizza and more. The company is easy for new investors to understand and analyse. Moreover, it looks cheap and is forecast to pay a dividend equivalent to 5.5% fully franked.
- Washington H. Soul Pattinson & Co. Ltd (ASX: SOL) has been listed on the sharemarket for more than 100 years. It's a conglomerate which holds stakes in private and public businesses, like TPG Telecom Ltd (ASX: TPM), for the long term. It's expected to yield 3.3% fully franked.
Foolish takeaway
If you want to invest for your children's future – and look like a great parent when they come of age – you should take action now. Start with a little bit and set long-term goals only. Indeed, if you think the sharemarket is a get-rich-quick scheme, you're going to be bitterly disappointed and will likely waste your money, in my opinion.
So start by saving what you can, doing your research and buy-to-hold shares for many years. And while your children unknowingly wait to put the cash to use, they'll be receiving some juicy fully franked dividends.
