If so, this is a marvelous opportunity to teach money management. 

If you are a parent/grandparent with a few extra dollars, the best thing you can do is to help young people learn how to manage their money and manage wealth.

So think about buying a share for one (or more) of your children/grandchildren, in trust, of course if they are under 18….and then during the growing up years, you can add a few dollars to the account  (as in giving them a gift) , while you teach him/her how to be a prudent investor and money manager. Use this as a teaching tool.

As you share the information with your child/grandchild, show them how assets accumulate when the principal is left to earn dividends. Compounding assets - as good as it gets - even in perilous times!  Good luck!  

Advantages for your children/grandchildren

(discussion on early investing)

Young children and grandchildren have two big advantages that older investors lack. First, they have a whole lifetime of compounding ahead of them.

It's hard to overstate the power of compounding. Say, for instance, that a 45-year-old invests $2,500 in a stock that produces average yearly compound returns of 10 per cent (the long-run average over many decades). By age 65, the investment is worth $16,819. Now say you give your newborn child or grandchild $2,500 of stock that also grows at an average yearly compound rate of 10 per cent. By age 65, your child or grandchild's investment turns into $1,225,928! That is why compounding is magic.

A second advantage that young children and grandchildren have is that they've never even heard of the Canada Customs and Revenue Agency. Usually they'll keep every last penny of investment income they earn — at least until they become adults. Especially since the tax department's 'attribution' rules will make the initial investment income taxable in your hands. Just remember to use common sense in applying the attribution rules.

By the way, your children or grandchildren may earn money from delivering newspapers, baby-sitting, modeling in advertisements, mowing lawns and so on. If so, help them file income tax returns. Your children or grandchildren will profit by building up contribution room within their RRSPs (or Registered Retirement Saving Plans). They could invest right away. Or, when they're adults, they can contribute the investment you gave them to a self-directed RRSP. This 'contribution in kind' will give them the usual tax break. While they may face capital gains taxes when making the contribution, income taxes are then deferred on the investment.

Besides, your children or grandchildren could make this contribution in a low-income year (when they're at university or, say, traveling abroad). Then they would face no income tax. Your children or grandchildren could claim the tax break later on when they do face income taxes.

When you choose a stock for your children or grandchildren, consider buying one that offers a DRIP, or Dividend Re-Investment Plan. We list such companies in our special reports on DRIPs in June and December.

There are other things you should keep in mind. One is to stick to high-quality stocks, such as those we rate 'Very Conservative' or 'Conservative'. Another is to stick to companies that sell necessities. After all, luxuries are apt to sell poorly in recession years like 2009. A third thing is to choose a company that profits from repeat business (where consumers need to buy the products or services over and over). After all, for your children or grandchildren to hold the stock for years, they'll need a solid company that's part of the core of the economy.

It's best to stay away from companies that lack predictable and steady earnings. Particularly with the credit crisis making it harder and costlier to borrow money these days. In fact, that's why we recommend you stay away from stock in toy companies.

A common investment made for children is stock in a toy company. The idea is that a toy maker is likely to hold their interest. That's why some children are shareholders of, say, Hasbro Inc., Mega Brands and Toys "R" US. While the products are likely to hold the children's attention, the financial statements and the notes almost certainly won't. Even some adults find reading the financial statements and notes tedious.

Another problem with toy makers is that they depend for profit on finding a successor each year to toys like Webkinz virtual pets. Over the years popular toys have included Tickle Me Elmo, Teenage Mutant Ninja Turtles, Beannie Babies, Cabbage Patch Dolls and so on. The fact is, children are subject to fickle peer pressure. As a result, toy companies can suffer in years when they produce no 'must-have' toys.

One buy-rated company that fits the bill is 'Very Conservative' Key stock Fortis Inc. It distributes electricity and natural gas. By providing these necessities, the company generates steadily-growing cash flow and earnings. Fortis remains a buy for long-term gains and dividends that rise each year, as do banks. Besides that, choosing a Canadian company means your investment for the child will not suffer from the exchange rate of the dollar. When you invest in American stocks, the money is exchanged into US dollars and then when cashed in - back into Canadian dollars. The investor usually does not profit from these kind of trades..

Another meeting the criteria is Key stock Toronto-Dominion Bank. Financial services are necessities in a money-based economy. One plus is that TD ranks among North America's largest retail banks. Retail banking is profitable and fairly safe. TD remains a buy for long-term gains and rising dividends.

One problem with giving shares in a company is that it can leave your children or grandchildren undiversified. Poor performance by that company will hurt their returns. That's why you may consider stock market index funds. These are funds that mirror the market indexes. Surprisingly, these passive investments beat most actively-traded stock mutual funds most of the time, though 2008 was an exception. In addition, it's seldom the same actively-traded stock mutual funds that beat the market year after year. In fact, in the five years to September, 2008, only seven per cent of Canadian stock funds beat the market.

One reason index funds are profitable is that they're low cost: there's no need to hire high-priced money managers to make decisions, since it only changes when the index does. There are few brokerage fees. You seldom pay the bid-ask spread (the difference between the prices potential buyers will pay and potential sellers will accept). Low turnover also keeps capital gains taxes low.

Another way to 'buy the market' is to invest in an exchange-traded fund, or ETF. These funds trade on the stock exchange, so you can buy them through your broker. Our sister publication, Canadian Mutual Fund Adviser, recommends buying the ishares Canadian Large Cap 60 Index. This gives you a basket of stocks in the S&P/TAX 60 index. Ask for the 'capped' version. This will prevent one stock from having undue weight — as Nortel Networks did a number of years ago.