Kid-friendly investments
double as  teaching tools
Youth is served with targeted marketing from banks, funds and brokers

Investment houses have turned their
promotional machines toward children. From
Stein Roe’s Young Investor Fund to Disney’s child-oriented stock reports, youth is served with targeted marketing from banks, funds and brokers.

IT MAKES SENSE, given that parents have become immune to the myriad sales pitches from investment houses and mutual fund companies. But parents tend to think kindly toward anyone — or anything — that helps teach their kids values that they’ll need later as adults. Besides, today’s second-grader is tomorrow’s consumer. The hope of banks and mutual funds is that brand loyalty starts with an interactive Web site and ends with pension fund deposits.

The difficulty is to find investments that offer both teaching and investment tools. There are plenty of Web sites that offer great learning vehicles for children and there are thousands of investments (more than 8,000 of them just in mutual funds) that are solid financial choices, but sadly, only a handful have merged the two concepts.

First off, financial marketers must contend with a level of ignorance that should come as no surprise. A nationwide study of 12th graders conducted in 1997
by the Jump Start Coalition for Personal Finance Literacy revealed that in a series of elementary-level questions, only 57 percent of the questions were answered correctly. When asked what the best return on investments had been over
the past 18 years, only 15 percent said stocks; the rest opted for U.S government bonds or savings accounts.

Despite the problems, several investment groups have begun making solid efforts in this area. Below are some of the best that combine teaching investment and savings
techniques with the option to put your cash to work.

BANKS AND S&LS
Banks and savings and loans make up the biggest group — and one with the most history in this effort. For years, S&Ls were known as places where children could
drop off their allowances in return for savings rates of 2 percent to 5 percent, depending on the era.

Even with rates today of less than 2 percent annually, financial institutions still have a big advantage because they’re physically in the neighborhoods and schools.
Neighborhood programs — like innovative talks, skits, plays, concerts and carnivals with money themes — do work with younger kids. Older children need good old-fashioned service and superior financial deals.

Ted Turner understood this in endowing the Young American’s Bank in Denver. Kids get a savings account, the right to borrow, a monthly newsletter and a real checkbook. They learn all the banking skills and how they interrelate. And they must leave the bank at age 21.

MUTUAL FUNDS
But savings and checking accounts won’t pay for colleges that cost more than $20,000 a year. That’s why mutual fund companies have moved in to fill the void. The Mutual Fund Education Alliance lists at least 40 funds aimed at children. That number undoubtedly will grow even higher with the new Education IRA that lets parents or others set aside up to $500 a year for a child’s college education. Of the ones that already cater to children, the mutual fund companies have positioned these funds to accept lower minimums, target long-term growth and presumably design a
kid-friendly outreach program.

But most burgeoning Web sites simply translate the printed page to a screen. Any games offered are mostly financial vocabulary crosswords, memory games or columns presented in question-and-answer formats. Kid-to-kid newsgroups could work, but those who already show an interest in finance usually gravitate to adult sites.

Of the mutual fund sites, perhaps the best-known and best-organized to date is by Stein Roe, which has been pitching to children and parents for years through its Young Investor program. Stein Roe’s Young Investor Fund (SRYIX) holds growth stocks in brand-name companies familiar to children, such as Coca-Cola (KO) and Mattel (MAT), and some they may not recognize but their parents will, such as Cisco Systems (CSCO) and Microsoft (MSFT).

Young Investor combines interactive games, calculators and editorial columns to teach children about investment strategies. And it doesn’t forget who’s probably watching in the background. It includes an area called “parent to parent,” in which it surveys parents on investment-related issues. For parents or children who invest in the Young Investor Fund, Stein Roe also sends snappy written materials with its statements to share with the kids. Still, parents may not be overly impressed if they compare Stein Roe with benchmarks like the Standard & Poor’s 500 (INX), which has outperformed the fund in the past year. The fund has fared better over longer periods, essentially matching the index over a five-year period.

BROKERS
Brokerage firms have discovered the youth angle as well, evidenced by Smith Barney’s Young Investor’s Network. The site focuses primarily on education; it allows children to create a “cyber portfolio” of stocks that they can track and see how they’ve fared, and includes savings and investment calculators to show how interest and stock appreciation works.

Commendably, Smith Barney doesn’t push children at every turn toward making investments through its brokerage house. Instead, it walks users through a series of learning exercises and then suggests that if the kids want to make an investment, they should have their parents contact a Smith Barney broker. (We’ll assume the parents understand that they can substitute any broker in this equation.) 

But as with many child-oriented Web sites, it may have a hard time keeping a child’s interest. Who decided it would be cool to show archaic etchings of Mr. Smith and Mr. Barney wearing starched collars, party hats and beanies?

Similarly, Merrill Lynch now offers its Family Savings Center, which allows children to subscribe to the “Savin' Dave” comic book, as well as offering potential lesson plans for teachers. The activity sheets help teach about saving and investing, but they aren’t intended as Web tools. Instead, users are invited to print the worksheets and answer a series of questions.

CIBC has taken its Guaranteed Investment Contracts (GICs), which usually are part of conservative pension plans, together with some mutual funds and a savings account and dubbed them the “Youth Investment Portfolio.” With it, you get CIBC’s Smart Start Program, “specifically designed to educate your kids about money.”

STOCKS
Corporations also have hopped on the marketing bandwagon, but the companies— or stocks — that have made the biggest efforts are the ones you would expect.

Walt Disney (DIS) recently won Liberty Financial’s coolest annual report contest, which was intended to provoke companies into creating reports that catered more
to children. PepsiCo (PEP) had the coolest cover, according to Liberty, with the report’s depiction of a Cat’s Eye Nebula from the Hubble telescope.

Last summer, Coca-Cola contemplated a partnership with McDonald’s (MCD) to create giveaways relating to personal finance. It’s questionable, however, as to whether a book on money — no matter how colorful — can compete with the plastic trinkets found in a Happy Meal.

Others like Mattel and Hasbro (HAS) offer interesting perquisites and insights to their latest toys, but many analysts have soured on toy manufacturers in recent years as the number of children under the age of 10 begins to decrease. Similarly, Toys “R” Us (TOY) is a natural for children, but the stock trades at less than what it sold for five years ago.

Each of these companies allows individuals to invest directly through direct stock purchase plans, which typically require people to invest $50 to $100 a month for additional shares after the initial investment. It’s a great way to teach dollar-cost averaging, but as a parent you’ll need to ask yourself: “Is this really how I want to invest my (or my child’s) money?”

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