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How Warren Buffett is making his family richer in 2020. I’d copy him!

What’s the greatest gift you can give to your kids? I’d say it’s knowledge. But in the absence of beaming common sense directly into children’s brains, or being allowed to physically force them to read the investing books you pass on, the best thing you can do is to set them up for life with stocks and shares.

And you could do worse than using Warren Buffett as a perfect example to help you make 2020 a stellar year for the family as a whole.

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Change the record

Mary Buffett, who was married to Warren’s son Peter, told ThinkAdvisor magazine that at the end of every year the Oracle of Omaha would hand out a stunning $10,000 in crisp hundred-dollar bills to his grateful family.

Then one Christmas there was an envelope with a letter from him. Instead of cash, he’d given us $10,000 worth of shares in…a trust Coca-Cola had,” Mary said.

The billionaire chairman of Berkshire Hathaway then told each of his beaming progeny that they could sell the prized shares for cash, or hold on to them to see if they’d appreciate in value.

Mary kept them and if Warren Buffett gave me shares, I would too. You may not be a billionaire, but you can be like Buffett for your family by setting up a Junior ISA. Just like the tax-free adult Stocks and Shares ISA, it also helps to shield youngsters’ gains from the taxman.

Junior ISA

You could set up a Junior Cash ISA, with which you can score 3% a year in interest compared to the maximum 1.5% currently available for adult Cash ISAs. But consider this — the average returns from the stock market still beat that 3%. Imagine the compound gains if you had your time again, and could grow investments in businesses like Unilever, Boohoo, Microsoft, Apple or Amazon over the course of 40+ years.

Junior ISA holders pay no income or capital gains tax if the shares grow in value, although the amount you can invest is limited to just £4,368 a year for the 2019/20 tax year.

One good thing is that the money in a Junior ISA is protected: your child won’t be able to withdraw it until they hit 18, at which point it becomes legally theirs to spend.

OK, I can see the danger there! If this was just in cash, there would be a massive temptation to blow it all, probably on a few weeks in Thailand or whatever the future’s version of a rusty, knackered Golf GTI is.

But if they have a Junior Stocks and Shares ISA, have learned about the market and seen their investment growing as they themselves grew, there’s more likelihood they’ll want to carry on with it.

AJ Bell, Fidelity and Hargreaves Lansdown all have their own Junior ISA options. Mostly they’re restricted to funds, so a starter portfolio should (in my opinion) consist of a UK FTSE 100 ETF, and perhaps a FTSE 250 and S&P 500 one. That should do the trick if compounded over the course of several decades. Check which ones allow you to trade for free, to reduce costs.

We may not have Warren Buffett’s $10,000 in Coca-Cola stock to hand out every December, but share investing means we can still make a richer future for those who will be looking after us in our dotage!

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Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.