5 Ways to Give Your Kids a Head Start with Finances

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Have you ever wished you learned about money at a younger age? Ever wished you had savings so you did not have to take out student loans? Ever wished you learned about investing at an earlier age? Well most of us have been there but unfortunately we cannot turn back time to prevent it. That is why I am going to give you 5 tips that could give your kids a head start on their financial journey. This way, they don’t go through that steep learning curve like us.

Tip #1 : Start a College Fund Early

Create a college fund for your child. You do not have to contribute a ton of your income to it but you do want to contribute to it early & often. For example, if you contribute $100 a month for 18 years that amounts to ~$21,000. This is before we consider the effect of compound interest! Talk about a huge head start! When it comes to money, the biggest factor is almost always time. With 18 years of contributions, they should be way ahead.

You do not want to just stash the money in a low-interest savings account either. You want to try to maximize the returns through some type of investment. This can be done in a few ways. Below I will list two popular choices.

• 529 Plan: A 529 plan is a tax-advantaged account to encourage people to save for higher education. While your money is growing in the account, no taxes will be due. When it is time to use it for college, the money can be withdrawn tax-free (bet you never thought you would hear that). The drawback is if your child decides not to pursue higher education, there can be penalties/taxes on the money.
• A Brokerage Account: A standard brokerage account on a platform like M1 Finance will allow you to invest the money you are saving. Not only will your contributions increase the total saved but the increase in market value will also increase the total saved. The account also has the flexibility that it can be used for anything. If your child decides not to go to college then they can use the money for a down payment on a house for example. The drawback is there is no tax-advantage so you need to pay taxes as you go for selling investments.

Tip #2: Teach Them About Money

I meet many people who have never thought about managing their money until they have moved out and realized bills are due monthly. Never having learned to manage money, they always feel like they are behind. Teaching your kids how money works can help prevent this. Here are 3 things(1 simple, 1 medium difficulty, and 1 advance) you can do to help them learn.

• Use a piggy bank: Whenever they get money, have them save some in a piggy bank. Make sure it is clear so they can see how saving money adds up over time.
• Teach Opportunity Cost: Show them there is an opportunity cost in purchases i.e. if they buy one thing then they cannot afford to buy the other thing.
• Open a Checking Account: When they get their first job (usually around 15/16) have them open a checking account. This way they get familiar with how a bank works. They can also use platforms like M1 that double as brokerage accounts to do their banking.

Tip #3: Add Them To Your Credit Card as Authorized Users (Only for those who pay their bills on time!)

Adding them to your cc as an authorized user can help establish a credit history for them. You do not have to actually give them the credit card for this to work but having them listed as an authorized user will effect their credit history in a positive way. The weird thing about getting credit is that you need to have a credit history to get credit but without credit you cannot establish a credit history! Now, I am not advocating for people to just go out and get into debt just to build credit but when it comes to getting things like a mortgage or insurance having good credit will save you tons of money.

It took me years to build my credit by getting a cc and paying off the bill every month. After roughly 5 years of doing this every month, I am approaching the 800 club! If my parents had been doing this for me since I was 16, I would probably already be there. Small head starts like this can come in handy later for them when it is time for them get car insurance or make their first home purchase. It might even save you money if you add them to your insurance policy.

Tip #4: Get Them Involved and Interested

Kids recognize popular brands just like adults. Some kids like Nike gear, some kids like Disney, some kids like video games (Xbox, PS4). Whatever it is they are interested in, you can connect that to financial lessons. For example, they can become a partial owner of Nike by owning stock in Nike. Now, when they wear the gear, some of the money comes back to them (this would have blown my mind at age 12). This is a fun way to get kids involved in finances because it makes it real to them. Kids are also savvy when it comes to tech so getting them started on a brokerage account with $50 should be easy. Platforms like M1 are free to use and have no fees. Check out this write up I did about using M1

Tip #5: Teach Them To Give

This is by far the most useful tip of all yet it is the hardest to teach. Teaching your kids to be cheerful givers can help them have a good heart and be a more generous person. Typically, these are the characteristics for people who are just nice to be around and whom produce great results through the law of attraction.

One effective way to teach your children to be cheerful givers is to model the desired behavior. Kids copy actions they see. If your children always see you giving cheerfully, they are more likely to give cheerfully. You can also be more explicit and make it a family thing. Try baking cookies for a sick friend or donating to fundraisers at your child’s school.

Do you have any clever tips for giving your kids a head start in finances? Leave them in the comments below.

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This writing is an opinion based piece and should not be considered investment advice.