When will housing prices stop falling?

My brother and I are interested in investing in Treasury notes, through the help of our parents. Since we are 8 and 10, can you help us to understand? Can you explain the difference in the Treasury notes and bills, how these investments work, and how to purchase them?
— Natalie D., Zebulon, Ga.

This is a terrific idea, Natalie. To show you how terrific it is: If I had invested $100 in Treasuries when I was 10, I’d have over $1,000 today. So the sooner you start, the sooner your money grows. And the longer you leave it alone, the faster you'll make more.

Treasuries are pieces of paper (or these days, electronic data in an account set up for you) that represent a loan to the U.S. government.  Like any loan, you get all your money back at a date you agree on when you make the loan (called the "expiration" date.) Until then, you get a regular interest payment. It’s kind of like rent: The person who borrows your money is paying you to use it.

Once every three months, the U.S. Treasury auctions off new bills, notes or bonds; everybody who wants to buy them tells the Treasury how much interest they want to get paid. The Treasury collects all these bids, starts with the lowest interest rates (it doesn’t want to pay any more than it has to), sells as much as it needs and then sets an average interest rate for that round of bills, notes or bonds. That rate never changes.

The main difference between bills, notes or bonds is the length of time they last. Treasury bills (also known as T-bills) only last for up to 26 weeks; notes last for 2, 5, and 10 years; bonds last 30 years. The other difference is that you usually get a little more interest the longer you agree to lock up your money.

One reason for that higher rate is that if you hold long-term Treasuries, there’s a risk that inflation will cut the buying power of your money. The dollars you get back from a Treasury bond in 30 years won’t go as far because inflation will have raised the prices of the things you want to buy. That’s why you always want an interest rate that’s higher than the rate of inflation.

Though Treasuries are about the safest investment you can buy, you can lose money. If you decide you need your money back before your Treasury expires, you can sell it someone else. But if interest rates have gone up, your Treasury won’t be worth as much as a new one: Investors would rather get the higher rate from the next auction. To make up for difference, you’ll have to sell for less than the full value — also called par value. (If rates go down, your bond is worth more.)

To buy Treasuries, you need to open an account directly with the Treasury on their Web site or through a brokerage. But you’re going to need your parents help to get started; until you’re 18 years old they have to open an account for you.

Don’t forget that interest payments — like any other type of income — are subject to taxes.  But we saved the best news for last. If you’re under 18, there’s a special rule called the “kiddie tax” that lets you keep $1,700 in interest in any year — without paying taxes. If you earn more than that, you have to pay taxes at the same rate as your parents.

MORE FROM ANSWER DESK

Answer Desk Section Front

Gold may be riskier that it seems U.S. debt could push interest rates higher Answer Desk: Adding up bank bailout losses Repairing consumer credit  Jobless benefit bedlam Who needs overpaid bankers? Who gets extended jobless benefits Easing job losses point to wobbly recovery Long-term jobless face frayed safety net GDP growth overstates case Answer Desk Section Front   Add Answer Desk headlines to your news reader: