How can I help my kids learn about money? That's a common concern among all engaged parents.
No one wants their kids to struggle. They also want their kids to be financially independent at some point.
At 9 and 11, my kids are about halfway to adulthood.
Like many parents, I want to help my children get a good start in life. Personally, I want to do this without sacrificing my and my husband’s futures.
Near this halfway mark to adulthood, I spent a little time reflecting on their young money journeys and how we, as parents (or grandparents, if that applies to you), will continue to help them if able. Until they’re launched, I plan to conduct a mini money review for them each fall around their birthdays.
Here are three suggestions to consider when thinking about how you can give your kids a firm financial education and foundation. Each will take just a few minutes and can be done annually as long as you think necessary!
- Do a reality check. Are your kids responsible? Spoiled? Learning the value of a dollar?
- Check their investments. Many parents and grandparents have set up 529 accounts or "transfers to minors" investments. Also, now there are Trump Accounts.
- Contribute if you can.
Evaluate the current situation
Most important, consider how you are currently supporting your children–both financially and with financial education. Of course, since my kids are minors, I provide for their basic needs–home, medical care, education, food–at a more than satisfactory level. (Though they debate this more often as they get older!)
I have written before about giving my kids an allowance, inspired by the book The Opposite of Spoiled. We started with $10 a week two years ago, and I don’t see a need to increase it. Since we’re supplying the basics, they buy things they want.
My daughter, Victoria, recently bought herself a 40 oz. Stanley tumbler. It’s something she’s excited about, and she uses it daily. My son used some of his allowance to buy his sister a KPop Demon Hunters-themed stuffed animal for her birthday.
I wouldn’t have bought either of these items with “my” money, but since it’s their money, who cares?
My husband and I also provide logistical help for businesses our kids are required to start and operate for their school’s Children’s Business Fair. They “pay” us by saving a portion for their futures.
Another suggestion from The Opposite of Spoiled: Share age-appropriate information about money with your kids. How much did our house cost? How much did our car cost? Why can’t we go to Disney World for my birthday? All fair game for an honest answer. We do this as best we can.
Other than family overhead and any allowance you choose to give your kids, all of this is FREE. Another free, fun way to experience practical money lessons together as a family is to play Monopoly. With more than 1,500 versions depending on your family’s interests, this game is a great way to spend time together while learning about mortgages, investing, property development, saving, and bankruptcy!
Evaluate your children’s investments
Many children in the U.S. have money invested on their behalf. There are 16 million college investment accounts alone, holding over $500 billion. Other popular options include “transfer to minors” and custodial retirement accounts.
Investments most people make for their children or grandchildren needn’t be complicated.
A few suggestions:
- Accounts for college or for gifting at a certain age may need to become more conservative as the time nears. Some funds allow you to target a specific year, doing the heavy lifting for you.
- Retirement accounts held for children should be invested aggressively if they truly are for the child’s retirement.[i] Such a long timeframe provides an excellent opportunity for potential growth. A $1,000 investment at age 10 earning 7 percent annually grows to over $46,000 by age 65, but is a paltry $3,000 if it only grows at 2 percent per year.[ii]
For most situations, a review once a year with your financial advisor should cover any investments you make for your children or grandchildren.
For my kids, we invested all money received as gifts when they were born, and each child has a small Roth IRA. I recently changed one investment to make it more aggressive.
It’s a good time to contribute
A birthday is the perfect time to invest for the children in your life. Some of our clients add monthly to their grandkids’ accounts, while others write one check a year. Even modest amounts are meaningful and have the chance to grow over time.
Some parents or grandparents don’t want to hand over a significant amount of cash to a young adult, or worry a child won’t attend college. If those are your concerns, your financial “help” could include setting aside funds for future milestones like a first car or apartment deposit.
You could also indulge your young loved one with a meaningful experience instead of just another toy or gift card. For example, my in-laws take my kids out to a special birthday dinner. They make a big deal out of it, and everyone has a blast. Last Christmas, I gave each of my kids certificates for experiences they can enjoy: rock climbing, a trip to a museum, a trip to an art exhibit. Those gifts of experience can help broaden the horizons of your favorite young people in ways a $20 bill never could.
As a parent or grandparent, you give your child many gifts—love, guidance, and opportunities. Adding financial wisdom and support to the mix means you’re not only celebrating who they are today, but also preparing them for the future.
Here at Corner Post Financial Planning, we’ve seen all kinds of scenarios where the older generation productively helps the younger generation. From college and transfer accounts to retirement, ongoing assistance, and estate planning strategies, we would love to help you through your special situation!
[i] Child labor laws apply, but young children may be paid as Household Employees for chores, and their tasks and wages must be documented. The child does not have to make the contribution with their own money. A parent or grandparent can make the contribution as long as the child has earned income. Work with your tax advisor to follow the law.
[ii] This is a hypothetical example and is not representative of any specific investment.