Have you ever wondered if you’re doing everything you can to set your child up for financial success? From saving for their education to teaching them financial responsibility, the options can feel overwhelming. How do you ensure they’re prepared without spoiling them or undermining the value of hard work? Here are six ways to set them on the right path for a secure financial future.
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1. Open a High-Yield Savings Account
A simple and effective way to begin is by opening a high-yield savings account. Personally, I use Ally Bank for both myself and my child. With a current interest rate of 4.20%, it’s a fantastic way to build their savings over time. Whenever my child receives a cash gift for birthdays or holidays, I deposit it into his savings account. Since we take care of his needs now, this money can grow until he needs it later.
2. Start an Education Savings Account
When planning for your child’s future, you have a few great options for setting aside money for their education or other needs. Opening an education savings account is a smart move, and you don’t need to contribute large sums to make an impact. For instance, we currently set aside $25 a month, but even smaller amounts can add up over time. You can also ask family members to contribute to the account instead of buying gifts, allowing the fund to grow even faster.
Two popular choices for education savings are 529 plans and custodial accounts like UGMA (Uniform Gifts to Minors Act) and UTMA (Uniform Transfers to Minors Act). Here’s a quick breakdown of each:
- 529 Plan: This account is specifically designed for education savings. The money grows tax-free as long as it’s used for qualified education expenses, like college tuition or even K-12 private school tuition in some cases. One significant advantage of the 529 plan is its flexibility—if your child doesn’t go to college, you can now convert unused 529 funds into a Roth IRA under new 2024 rules, with certain limits. This allows you to roll over a portion of the funds into a retirement account, offering a way to still benefit from the tax-advantaged growth even if the education savings aren’t fully utilized.
- UGMA/UTMA Accounts: These are custodial accounts that allow you to transfer money, stocks, or other assets to your child. The key difference from a 529 plan is that these funds don’t have to be used for education. The child gains control of the account at a certain age—usually 18 or 21—depending on your state’s rules. UGMA accounts typically allow transfers of financial assets like cash and stocks, while UTMA accounts can hold additional assets like real estate. However, be cautious because once your child reaches adulthood, they can use the funds however they like, whether or not they’re financially responsible at that point.
How to Choose Investments for Children’s Future
For my child, I follow JL Collins’s advice in The Simple Path to Wealth and invest in a total stock market index fund like VTSAX within his 529 plan. This strategy takes advantage of long-term growth, making it a great option for those starting early.
While I’m not a financial professional, I strongly recommend consulting with one to find the best investment options for your needs. Be sure to choose a fiduciary—someone legally required to act in your best interest, rather than recommending investments that earn them the highest commission. Ideally, look for someone who charges by the hour instead of taking a percentage of your portfolio. This way, you can ask all your questions, receive expert guidance, and confidently set up your child’s education savings to automatically invest in your chosen fund(s), without ongoing fees eating into your returns.
3. Build Their Credit from Birth
Did you know you can make your child an authorized user on your credit card from a young age? Doing this can help them start building credit early. But be cautious—your credit behavior will directly affect their score. This only makes sense if you have excellent credit habits. You can tuck their card away until they’re old enough to understand how to use it wisely.
4. Enroll Them in Frequent Flyer Programs
If your family travels often, you can sign your child up for frequent flyer programs, even if they’re just riding on your reservation. Programs like Southwest and Delta allow them to start earning miles, which could come in handy for future trips!
5. Talk About Money Openly
One of the best ways to teach your children about money is by simply talking about it in their presence. Don’t overwhelm them, but let them see that budgeting, spending, and saving are natural parts of life. Invite them to join you when you review your budget or go grocery shopping, so they begin absorbing financial habits early.
6. Teach Financial Literacy Early
Teaching your kids about money doesn’t have to wait until they’re older. Here are some great resources you can use at different stages of their development:
- Money Monsters from the Consumer Finance Bureau
The Money Monsters series is perfect for younger children. Through storybooks, activities, and games, the Money Monsters introduce kids to important money concepts like earning, saving, and spending. It’s a fun and interactive way to help young children develop financial literacy early on. - Investing for Kids Activity Book: 65 Activities About Saving, Investing, and Growing Your Money
This activity book is perfect for kids ages 8-12 and introduces them to important financial concepts like saving, budgeting, and investing. With fun activities, it makes learning about money engaging and accessible. It’s a great tool for both parents and educators to help kids understand how money works in a hands-on way. - Khan Academy’s Financial Literacy Resources
Khan Academy offers a free online course that covers a wide range of financial topics suitable for various ages. Their financial literacy section includes interactive lessons on saving, budgeting, managing debt, and investing. It’s especially useful for teens who are starting to think about managing their own money and planning for future financial decisions. - Practical Money Skills
Practical Money Skills, created by Visa, offers free, age-appropriate resources for teaching personal finance. Their family life section is ideal for parents wanting to teach their kids basic money management skills. It includes everything from simple budgeting exercises to more complex financial planning tools, making it suitable for young kids, teens, and young adults. - Hit the Road: A Financial Adventure
This interactive game, provided by the National Credit Union Administration, is a fun way for kids to learn how to manage money. In this virtual road trip, players make real-world financial decisions like budgeting for gas, food, and entertainment. It’s an engaging way for kids and tweens to experience financial decision-making without real-world consequences. - Build Your Stax
This simulation game is great for older kids and teens. It teaches the basics of investing by simulating a stock market over a 20-year period, allowing players to choose different investment strategies. The goal is to build wealth over time while learning how different investment choices affect your overall success. It’s an excellent introduction to more advanced financial concepts like risk tolerance and asset allocation.
These tools provide a variety of approaches to teaching financial literacy, helping your kids develop lifelong money management skills in a fun and interactive way.
Additional Resources for Entrepreneurial Kids
If your child shows a particular interest in finance or entrepreneurship, you can explore additional tools like these:
- The Simple StartUp
The Simple StartUp is an educational resource designed to teach kids and teens (ages 10-18) the basics of starting their own business. It guides them through the entire process, from brainstorming business ideas to managing finances and making a profit. The resource includes a workbook and a community where young entrepreneurs can learn through hands-on activities and real-world scenarios. It’s perfect for kids interested in entrepreneurship, teaching valuable lessons on budgeting, marketing, and customer service. Whether your child wants to run a lemonade stand or a small online store, The Simple StartUp helps them gain the practical skills needed to succeed. - Biz Kids
Biz Kids is a multimedia platform that offers educational TV episodes, online resources, and activities focused on entrepreneurship and financial literacy for kids. The TV show, which aired on PBS, features young entrepreneurs and provides entertaining, real-life examples of how kids can start their own businesses and manage money wisely. The website offers free lesson plans, games, and activities that teach kids about business concepts like saving, budgeting, investing, and giving back to the community. It’s an excellent resource for kids of all ages who want to learn about money management and entrepreneurship in a fun, relatable way.
Summary
As Warren Buffett wisely said, “I want to leave my children enough so that they can do anything but not so much that they can do nothing.” Setting your child up for financial success isn’t just about saving money—it’s about teaching them to manage it wisely. It’s never too early or too late to start building good financial habits that will last a lifetime.
While it’s great to save for your child’s future, the most important thing you can do is equip them with the skills to earn, save, invest, and spend responsibly. By incorporating these steps into your family’s routine, you’ll be giving them the tools they need for financial success.
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- Encouraging Your Toddler’s Independence: Practical Strategies for Parents
- How to Afford to Be a Stay-at-Home Mom in 2024
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