The keys to a successful future are learned early. Whether you have always made sound financial choices yourself, or if you have struggled with your finances at some point in the past, you probably want to help your child be financially stable as they grow older. Here are five keys that you can use to help your child prepare for a financially stable future.
Help Them Set Up a Savings Account
The best way to instill the desire to save in children is to help them set up their own savings account at a bank or credit union. You can put money in their savings account, and they can contribute with money that they receive as gifts for their birthday or holidays. As your child gets older and starts working, they can put money in their savings account from their earnings, too. You can help make this a special occasion by going to the bank and setting up a savings account in your child’s name and then taking them out for a treat.
Educate Them About Finances
It’s never too soon to start talking to your child about finances. Make sure that your child knows about things like saving, debt, credit, interest, and investing. This can help them be financially literate and can help them make good financial decisions as they get older.
Help Them Establish Credit
There are a variety of different types of credit and debit cards available. If you get your child a “Student” credit card with a very low limit, you can teach them how to manage their finances while building their credit.
In many cases, you can add a minor child as an approved user of your credit card. If you make your credit card payments on time, this can sometimes help your minor child begin to build credit at a young age. As you probably already know, having good credit can make a big, positive difference in your life in regard to your finances. Therefore, helping your child in this way can be a good idea, if possible.
Open an Investment Account
Many people don’t know it, but it’s possible to open up an investment account for kids. Opening up one of these accounts can be a good idea, since you can teach your child about investing and can help them learn about making money grow. Typically when you open an account for a minor (someone under 18), you have to have an adult on the account, and it is created under the Uniform Gifts to Minors Act (UGMA).
Key Takeaways (according to Investopedia):
- The Uniform Gifts to Minors Act (UGMA) provides a way to transfer financial assets to a minor without the time-consuming and expensive establishment of a formal trust.
- A UGMA account is managed by an adult custodian until the minor beneficiary comes of age, at which point they assume control of the account.
- UGMA account-generated earnings are not tax-sheltered, but they are taxed at the minor’s lower “kiddie tax” rate, up to a certain amount.
Create a College Savings Plan
If you are hoping that your child will go to college when they graduate from high school, you are probably at least a little worried about how much it’s going to cost. One way you can help ensure that your child can go to college without going into too much debt is to start a college savings account. Some states offer tax deductions for contributions to a college savings plan (called a 529 plan). Typically this means 529 plans offer no tax on interest earned as long as earnings are used for qualified education expenses.
Setting your child up for a good financial future is important. All five of these things can help you with this plan.
You might also like: