Responsible financial management is not innate. Most kids aren’t born savers and some can struggle with the concept of deferred gratification.
It can take real dedication to invest for the future (for adults and children alike) particularly when there are so many distractions at hand.
If you have children of your own or spend time with your grandkids and other young family members, we encourage you to take advantage of your influence as a financial role model. It’s never too early to start setting kids on the right path. Here are a few ideas on how to help kids learn basic concepts of finance and saving.
Encourage Kids to Save
Involve kids in purchasing decisions.
Everyday experiences can be perfect learning opportunities. At the grocery store, try letting your kids have a say in which food items to buy, but remind them that their choices could impact whether or not you can afford to go out to eat later in the week.
Demonstrate how to be a savvy shopper.
Kids can help weigh and price bulk produce or compare unit prices for generic versus brand name items. Exercises like this are great because they can help foster collaboration, instill a sense of consequence, and provide rapid reinforcement when it comes to a trip to the arcade on the weekend.
Make an allowance count.
No matter what rules you’ve set related to an allowance, you can provide your kids with three separate “accounts”. Show them how to divvy up their bounty between “Savings,” “Sharing” (for charity or gifts), and “Spending”. It can be a simple method to help even the youngest children learn self-discipline.
Open a custodial account.
As your child’s financial awareness grows, you can consider opening a savings or custodial account. For the enterprising saver, a custodial account is one way to help a child learn about investing in stocks and other financial assets.
Offer to match their savings.
For big cash-flow events like birthdays and holidays, parents can encourage their children to save by offering to match a portion of whatever is deposited into long-term investments. A little extra encouragement can go a long way, and this is a great way to encourage saving for retirement, college, or future purchases
You can also benefit because you’re transferring wealth in small amounts known as gifting. For larger contributions, be sure to consult a tax professional. Generally, gifts to one person under $14,000 in a given year are not taxable.
Crack open a good book.
Topics range from how piggy banks got their name, to bank lending rates, and even a short section that helps kids determine their investing risk-tolerance.
U.S. News & World Report published a list of entertaining kids’ books about money management, geared toward a variety of reading levels. From a picture book starring the mischievous bunny Max and his long-suffering sister, Ruby, to Jacqueline Davies’ entrepreneurial middle-grade series, The Lemonade War, these stories can help engage young readers while (shh!) helping to teach valuable lessons.
Get Started Early: Open a Custodial Brokerage Account
For kids who might be interested in the stock market and for parents who want to help them start a lifelong investment habit, a Custodial Brokerage account could be a great option.
You might want to consider a robo portfolio for your custodial account, and be sure to confirm the investment minimums.
Are you teaching the kids in your life how to manage their money? Let us know what strategies you use in the comments below.