When Damon Williams bought his first share of Nike stock (NKE), he was just 6 years old. It all started with his addiction to Michael Jordan's Nike shoe line. "I was a die-hard basketball player pretty much from the age of 4. So growing up in Chicago in the '90s, you really couldn't hold your own on the basketball court if you didn't have a pair of Jordans,†he says. But after buying him one too many pairs of the $70 shoes, his mother, April, closed her wallet. She told her son that if he wanted another pair of Jordans, he would have to save his money and buy a share of Nike stock first. "I was determined to get the Jordans. I really didn't care too much about the shares,†he admits. Williams had no idea that a single $30 stock purchase would be the foundation of a $55,000 portfolio 13 years later. Besides accruing the capital appreciation, he learned a valuable lesson. "Anybody can do this. It's not just for the affluent,†he says. After purchasing that one share of Nike stock, "My mom taught me about ownership and investing, and that I don't have to [provide] free advertising for these corporations. I can make money with them.†In addition, Williams participated in the Ujamaa Junior Investment Club his mother started for the children of the adult Ujamaa Investment Club, which she also founded. Financial experts agree that stories like that of Damon and April Williams illustrate one of the best ways to begin teaching children about investing and personal finance. "Parents should encourage teens to invest in companies they know,†says Mellody Hobson, president of Chicago-based Ariel Investments L.L.C. (www.arielinvestments.com). "If they like products from companies like Nike, Apple, or Sony, then encourage them to buy shares of those companies.†(Continued on next page) Today, at age 19, Williams describes himself as a long-term investor; he likes to hold stocks for seven to 10 years. "I'm not really into quick trades or guessing or gambling. I look for stable companies that have been growing in earnings for five years consistently,†he says. Nike, Walgreens (WAG), Procter and Gamble (PG), and Apple (AAPL) are a few of the top holdings in his portfolio. "I know the companies I invest in are solid and will be around for generations. When there are overall trends of companies going down, I try, if I have the capital, to buy more [shares of those companies],†he says. Because young investors have the advantage of compound interest and time working in their favor, it's important to start early. If a 15-year-old invested $2,000 a year earning an annual return of 8% until age 30, he or she would have more than $896,000 at age 65, even if another cent wasn't contributed to that investment after his or her 30th birthday. If that same 15-year-old continued to invest $2,000 a year until retirement, however, the account would be worth more than $1.2 million. "The money conversation is one you have on the continuum,†says Hobson. For children as young as 4, parents can introduce concepts like saving and the value of a dollar. Preschoolers know what a piggy bank is for, and that a quarter is worth more than a dime. As a child gets older, around age 7, parents can discuss financial topics like investing. Children, especially teens, are often tempted to spend whatever money they have on the latest clothes, shoes, and gadgets, so the idea of investing may be unappealing. However, parents can help spark their child's interest by enrolling them in financial education programs for children. Summer camps such as those offered by Bull and Bear Investment Camp for Kids (www.bullandbearcamp.com), Future Investor Clubs of America (www.futureinvestorsclub.com), and YoungBiz (www.youngbiz.com) teach banking, budgeting, and investing principles. (Continued on next page) The investment club Williams participated in as a youngster taught its members how stock ownership works, how to grow and diversify a portfolio, and how to review annual reports. "After a few years, it became second nature,†he says. "It was never anything too complicated.†Investment clubs, money camps–any way you can make investing fun and engaging is a good idea, say experts. Also, check out apps and games such as the P2K Money app (www.p2kmoney.com), which teaches money management. Opening Accounts for Minors Although in most states children younger than 18 cannot legally buy stock or mutual funds, adults can create accounts and invest on behalf of minors. Two popular options include UGMA, the Uniform Gift to Minors Act, and UTMA, the Uniform Transfer to Minors Account. According to financial advisers Waddell & Reed (www.waddell.com), these accounts are good for families who want to help their children own securities, but prefer not to hire a lawyer to create a special trust. "The account is held at a financial institution and an adult serves as a custodian,†says Elizabeth M. Ruch, certified financial planner at Waddell & Reed. The custodian can make withdrawals for the benefit of the child, but the child cannot withdraw funds until he or she reaches the age of maturity–18 or 21, depending on the state. Ruch says there's no limit to the amount of money these accounts can hold, but there is an annual cap on individual contributions (for 2012 the cap is $13,000). Funds gifted to these accounts are irrevocable. To learn about the specific tax benefits, consult your tax professional. Fourteen-year-old Atlanta business partners Jordan Williams (no relation to Damon Williams) and Brandon Iverson, both contribute $25 a month in the Monetta Young Investor Fund (www.young investorfund.com). Jordan was always interested in investing and took it upon himself to learn more. "I started doing some research online and eventually found the Monetta Young InvestorFund (MYIFX),†a no-load mutual fund for kids with a three-year annualized return of 34.4%. "I went over it with my parents, and we decided to go ahead and start a custodial account.†He convinced his friend Brandon to join him. They each have about $500 invested in the mutual fund. Through their business, Making Money for Teens (www.makingmoneyforteens.org), Jordan and Brandon offer a series of DVDs aimed at helping other youth understand the power of saving and investing.