Whether you’ve just had your first child or you’re on your way to a full starting lineup, you think a lot about how to best equip your kids to live in an increasingly complex world. You don’t just want them to live, you want them to thrive!
We suggest you start talking with your kids about money as soon as possible. Financial literacy is a foundational life lesson that’s often overlooked until habits and mindsets have already taken root. Teaching them how money works, and instilling in them strong habits around saving are critically important to your child’s ability to make smart decisions throughout their lives.
We know: it’s not always easy to get your kids to listen (and not just about financial responsibility). Below, we offer some fun ideas for teaching your kiddos real word concepts at their level. We’ll also show you how to begin fostering good habits in them by identifying needs versus wants and regularly discussing the value of being savings-minded. Finally, we give you some practical savings strategies to help them along.
Preparing Children for Financial Success
How to expose your children to finances when they are young.
Make budgeting a game and talk about money.
Discuss goals and wants versus needs.
Choose a stock and track what would happen to your child’s money had it been invested.
How can I help build an investor mindset in my child?
Demonstrate and encourage goal-oriented saving.
Explain and show examples of how money grows money (compound interest).
Act on your own good advice.
What kind of savings accounts will help my child begin saving early?
A 529 savings plan is a tax-advantaged fund specifically for education-related expenses.
You can open a custodial account for your child. They'll gain complete ownership over it when they reach the age of majority in your state (18 or 21).
Joint checking accounts allow you to involve your kids in financial decision-making and teach them money management skills.
Early Exposure to Financial Literacy
You’ve probably learned this elsewhere in your parenting, but don’t underestimate how much your kids already know about money. Before you start imparting your grand wisdom, take the time to gauge their current level of knowledge. You may be pleasantly surprised by what they already understand. Otherwise, you may end the conversation before you start it.
- Use real world examples. The financial decisions you make every day offer plenty of opportunities to include your kids in the family decision-making process around money. Try having your kid list their favorite things you usually purchase from the grocery store, then talk to them about budgeting. Make it a game, and take a special trip to the supermarket and see how they do with the amount of money you’ve allowed. Even at a very young age, regular chats about money can have a long-term impact.
- Start an investment account for your kids. Investing is a fun way to start your kids on the road to financial literacy and get a nest egg going for them at the same time. Showing your eight year old how money can grow its own money over time is a great way to demonstrate compound interest. Check out small-dollar or paper trading platforms, and start regularly tracking the stock of their favorite company over time, showing them visually how money can grow. And if they end up being able to pay for their own college tuition, let’s call that a perk.
Encouraging kids to ask questions and express their thoughts about money will help them feel comfortable around a topic that a lot of adults still struggle with .
Building the Investor Mindset
With short-term gratification at the core of the marketing your kids see on social media and elsewhere – and let’s be honest, that all of us see all the time – it’s a challenge for your message of restraint and responsibility to compete with flashy advertising for fun stuff. Countering that influence without demonizing it or prohibiting fun is the balance you’re looking to strike, and you might just teach your kids a few valuable life lessons at the same time.
Teach Needs vs. Wants.
While spending money on the awesome sneakers they “need” will certainly feel great at the time, that feeling fades pretty quickly. Soon, all they’ll have is a pair of flashy kicks in the back of the closet that aren’t cool anymore.
Real needs, like needing to fix the car they hope to one day be driving, have a habit of popping up unexpectedly. If they can start regularly setting aside some money in an emergency fund now, they’ll be good to go when the time comes for new tires.
Encourage goal-oriented saving.
Once they understand wants vs. needs, ask them to make a list. Go over it together, and have them add some of the needs they don’t know about because you pay for them. Then, create a savings goal for one of their top wants.
Savings jars or tracking charts are excellent ways to keep track of their progress along the way. When they hit their goal, the reward of going to the store and getting what they’ve worked hard for will feel amazing.
Compound Interest: How money makes money.
Compound interest is the single most valuable tool in any saver’s kit, and the earlier your kids can get on board, the more financially stable they’re going to be throughout their lives. But, like any savings goal, it’s a lesson in patience, in delayed gratification, and that can be one of the hardest values to teach to a kid.
As soon as they see it working, though, the lesson will start to hit home. With the steady accumulation of interest earnings from regular deposits into a high-yield savings account or investment account, they’ll see they’re actually making more money the longer it sits.
Practice what you preach.
Your own financial decisions have a major impact on the shaping of your children’s attitudes and behaviors towards money. Share your experiences and the lessons you learned from them. Don’t be embarrassed to tell them about your mistakes as well as the advantages you gained from learning to budget, save, and invest. Money doesn’t need to be the taboo subject that we’ve all grown accustomed to it being.
Getting Started With The Right Accounts
Teaching your kids about saving and investing also means showing them the financial instruments they can use throughout their lives to build a strong future for themselves. There are a number of savings products out there designed just for children, and others that you may already use that can benefit them as well.
529 Savings Plan
- What it is: A 529 plan is a tax-advantaged investment account designed specifically for educational expenses. You can save for your child’s college in a dedicated fund for education
- Benefits for the Child: Growth on contributions isn’t taxed, nor are withdrawals used for qualified expenses like tuition, room and board, and books. Some states offer tax deductions for contributions made to a 529. You can also get your child involved by reviewing monthly statements with them as they get closer to college, and coming up with a plan for them to contribute to the account as well.
- Limitations: Money from a 529 must be used for qualified education expenses. If your kid decides not to follow the higher education route, you’ll be hit with taxes and potential penalties.
Custodial Accounts (UTMA/UGMA)
- What it is: As the custodian of custodial account on behalf of your child — also known as a UTMA (Uniform Transfers to Minors Act) or UGMA (Uniform Gifts to Minors Act) — you are bound by fiduciary duty to act in your child’s best interest.
- Benefits for the Child: Custodial brokerage accounts offer more flexibility and a broader range of investment options than 529 plans. At the age of majority (18 or 21), your child gains ownership of the account and its accumulated assets.
- Depending on how old your child is now, it may be difficult to think about what they’ll be like when they legally gain control of the account. It’s important to keep this in mind when you’re deciding how much you want to put into this type of account. You may be significantly funding this account, earmarking it as a future home down payment or business fund. But your child may have entirely different plans when they gain control of how to spend the money.
- Limitations: Once they’re old enough, your kid has the authority to use the funds from their custodial account any way they wish, but the account isn’t tax advantaged like a Roth IRA, so they’re also on the hook for the taxes.
Joint Accounts
- What it is: It’s a bank or investment account that you and your child co-own.
- Benefits for the Child: You can involve your kids in financial decision-making and teach them money management skills in real life situations.
- Limitations: Differences in spending habits and financial goals can lead to conflict and both parties are liable for overdrafts and debts.
Roth IRA
- What it is: A Roth IRA is a retirement savings account in which contributions grow tax-free for decades, and withdrawals made in retirement are tax-free as well.
- Benefits for the Child: If your child already has earned income, a custodial Roth IRA offers a valuable opportunity to start saving for retirement very early. Withdrawals made in retirement are tax free and there’s flexibility if they want to use some funds for qualified educational expenses or to reach other financial goals.
- Limitations: Contributions to a Roth IRA are limited to earned (taxable) income, with annual contribution limits set by the IRS. Roth IRA balances will fluctuate with market conditions
Final Thoughts
By starting the conversation about money early and supporting a healthy relationship with money through everyday interactions and real-world examples, you’re empowering your kids to make smart financial choices and build a secure life.
Encourage curiosity, make the boring stuff into a game, lead by example, and celebrate milestones. Share your own experiences and the lessons you learned from them to create a supportive environment where your kids feel free to explore finance and take some control over their financial futures.
Familiarizing yourself with the variety of different accounts and savings strategies available can give you a leg up in enhancing your child’s financial future and education. Financial planning can be complex for anyone, much less parents and kids, so seek advice from financial professionals who can provide personalized guidance and support that suits your family, and then pass along what you learn to your kid.
For the last quarter-century, the professionals at SK Wealth have perfected The Integrated Financial Advantage™, a unique financial planning approach crafted to provide our clients with personalized guidance so they can live with intention both tomorrow and today.
