Introducing saving/investing to kids?

[starnz]

Hello all, I have a couple questions. I am interested in introducing my children to saving and then investing but was unsure of a couple of the investing options. I have twin 5 yr olds and a 5 month old infant.

For the twins, I just started giving them an allowance if certain things are done around the house. My plan was to then give them the allowance(potentially $5 a week) but also duplicate that amount in a simple savings account. If they spend it one dollar at a time or save it will be their discretion but after a couple months I plan to compare what they have and can buy vs. what they could have and could buy by using the savings acct. They love Wii and DS games so if they see they'd have enough to buy games by saving instead of spending the money in the quarter machines or on candy my hope is something will click for them with regard to saving.

My other question has to deal with investing. I am very interested in compounding interest and would love for my three kids to be able to take advantage of it. If I want to set up an acct with a couple hundred dollars initially while adding to it every month or so, what would be the best way to go about it. My dream would be for this to be something that is completely in the background, maybe automated, and forgotten about for the next 30-40 years. That may be extreme but my point is I don't want it to be like a savings account that is easily accessible and checked several times a year.

Is this way of investing possible? If so, what is the best way to go about it? Any comments on the approach toward saving? Is there a better way to introduce this habit?

Sorry for the long winded post but I have lots of questions.... thanks for any help in advance.

[snshijuptr]

First I will adress saving for your children. If you are interested in helping them pay for college, then you should see if your state offers a tax advantaged 529 plan. If they don't go to college, of any sort, then they can keep the money to use with their own children, plus the money counts as parent money for calculating financial aid (a huge incentive).

Second, when it comes to formal information about teaching children about money, you have to be careful that the lessons are age appropriate (most are for adult re-education) and that they teach finance not economic theory. With that in mind, I recommend checking out this webpage of lessons for K-4 students:

Resource Search - Federal Reserve Education

Also check out home economics (sometimes called family and consumer sciences) resources. They teach budgeting, advertising awareness, and investing skills.

[Slug]

Age-appropriateness is key. My 4 year old has a money market, credit card in his name, brokerage account, and a 529 plan and what he knows of any of this now is that he gets a letter each month with a tiger and some numbers on it (which he loves). He used his birthday money to buy his first LEGO today. He paid in cash. If I had taken him, I'd have made him put on the card so 1% would've gone to his 529 (j/k).

Like you I'm just setting most of this up now to be able to show the power of compounding and dividends in a decade. More on that here.