Dear Mr. Berko:

I have seven grandchildren, ranging in age from 7 to 15, and each birthday for the past four years, we have given them certificates of deposit, which have accumulated very nicely. It’s much easier than picking gifts for them, which we do for Christmas, but CDs and savings bonds are boring. And because the rates are so low, they are a waste of time to own. Now we’re thinking of buying each grandchild a small life insurance policy and then giving each one money every year to keep up the premium payments. What do you think of this idea? 
P.L., Fort Walton Beach, Fla.



Dear P.L.: 

Though life insurers such as MetLife, Prudential, Northwestern Mutual and John Hancock will enthusiastically welcome your idea, I think life insurance policies for grandkids sphinx! Show me a 10-year-old who’d like a life insurance policy, and I will show you a kid who may have a very unhappy adult life. What a bloody bore. Give the grandkids gifts that keep on giving, gifts that can teach them about the world they live in and gifts they can enjoy. Give them gifts that are part of their everyday life cycle, such as shares of the dividend-paying stocks of McDonald’s, The Walt Disney Co., Home Depot, Microsoft, The Hershey Co., Walgreen Co., PepsiCo, Boeing or General Electric. For a very small fee or no fee at all, you can invest $100 and purchase 2.846 shares of AT&T or 4.372 shares of GE or 1.105 shares of McDonald’s, etc., which the grandkids can keep for 50 years and even pass on to their children.

Get started by getting hold of a book called “No-Load Stocks,” published by McGraw-Hill and written by Charles Carlson. Order it from Amazon.com, or check it out of the library, or purchase it from Barnes & Noble and help this bookseller remain in business. Carlson’s very easy-to-understand book lists the names of no-load stocks and describes, step by step, how they can be bought directly from the company without a broker or commission cost. And over the years, as your grandkids get older, you will be able to build them a compelling portfolio of excellent no-load stocks for their future. It’s simple as Simon and easy as falling off a log with a pie.

If McDonald’s is one of your choices (a good one, considering its impressive revenue, earnings and dividend growth), all you need to do is ring its investor relations department to obtain an application form and a prospectus. The prospectus describes, in easy detail, the simple procedures, regulations, minimum investment levels, nominal fees, how to reinvest the dividends and everything else you need to know about enrolling the grandkids in this College of Financial Knowledge. Wal-Mart, Procter & Gamble and AT&T are also ready when you are. So when your grandkids use their cellphones or visit Walt Disney World or purchase a Pepsi product or shop at Home Depot, they will know they have a stake in that company. This is an excellent opportunity to teach them a little bit about the importance of investing. For each stock they own, they will receive an annual report and quarterly statements that show the value of the account each time a dividend is reinvested, the number of new shares purchased and the new current value compared with the previous quarter’s market price. This beats the bejabbers out of shopping for birthdays, Christmas and other important events in their lives. And it’s probable that after a few years or so, the grandkids will understand that the concept of making money by investing is preferable to laboring for it. If you take the time to present this investment concept to the grandkids, I’m certain they will benefit enormously more than they would if you were to give them a $100 check, a one-year CD or a techno-toy, such as an iPod.

You can do this through your broker if you don’t mind paying the egregious commission costs, plus an annual $100 fee because the account doesn’t generate enough commissions to warrant the brokerage’s keeping it open and sending statements each quarter.