Identification

• Parents can purchase stocks for minors, but they must set up a custodial account. Most banks and brokers call these Uniform Gifts to Minors Act (UGMA) or Uniform Transfer to Minors Act (UTMA) accounts, depending on the laws of the state. You have control of the account while the child is a minor, but once she reaches age 18 -- 21 in some states -- he automatically gains control of it. Brokers usually drastically lower their minimum account balance for custodial accounts -- sometimes to $100 and less.
  
  

Informal Arrangement

• If you do not want the legal complications of opening a custodial account, you can create an agreement with your child to purchase stocks for him. For instance, the child can give you $100 and you buy $100 worth of stock for him in your brokerage account. However, you need to keep accurate records of who owns what shares, the child has to trust that you won't cash the stock for personal reasons, and he must use the same investment account as you.
  
  

Other Options

• If you do not have a brokerage account of your own, look for youth investment groups, such as the National Association of Investors Corp. This type of organization lets young people pay an annual fee and purchase stocks directly -- using a custodial account with the parent -- from companies at a cut rate and reinvest dividends into more stocks. Some companies, such as McDonald's, let you purchase shares directly from them. Most of these companies, like McDonald and Wal-Mart, require you to purchase several hundred dollars worth of stock but let you automatically withdraw money from your bank account every few months to purchase additional stock with dividends from current holdings.
  
  

Considerations

• Consider how a custodial account will affect the child's college financial aid package. If you open a UTMA/UGMA for the child, you must report the account as an asset of the child on his Free Application for Federal Student Aid. Students usually have to put a higher percentage of their assets toward college expenses than parents, so putting stocks in your name may mean the financial aid package will be higher. Ideally, another relative, such as a grandparent, should hold assets for the child because the FAFSA does not factor in other relatives' assets.