One of the constant worries parents have is their children’s financial security. As adults, we know the financial challenges of getting through life. We deal with student loans, credit card debts, taxes, mortgage refinancing, and a lot of other similar things.
To give us peace of mind about our children’s financial security, we need to teach them how to properly manage their finances, including how to wisely invest their money.
Step 1: Teach your kids the value of money.
Before anything else, you need to teach your kids the value of money. This is the very first thing to becoming money-wise.
As young as they are, show them that all the goods and services you acquire costs money. Inversely, allow them to see what it takes to earn money.
Ask them to imagine what it would be like to not have money to buy toys and food with. Try playing Monopoly with them and show them the real-world equivalent of exchanging cash for assets. Take time to watch documentaries with them about the living condition in other countries whose economies aren’t doing well.
Find out what their thoughts are and help them properly process a greater understanding of and appreciation for money. Once a child sees that money can be used to improve living conditions, they will grow to appreciate the hard work that comes with earning it.
Step 2: Instill and nurture better money habits in them.
For your kids to have a greater appreciation for money, you need to help them build and establish the right money habits. The younger they are the better.
While giving them a piggy bank is a great way to start them saving, there are other age-appropriate ways to teach them how to handle money wisely.
One of the very basic things you can teach them is knowing how to prioritize spending by showing them the differences between needs and wants. You can also teach them about expendable income and making decisions by giving them a fixed amount of money to spend the next time you make a trip to the store. Show them how to save money by comparing prices before deciding on a purchase. You can even take it a bit further by teaching them the value of delayed gratification and letting them save up for a bigger and better toy.
There are a lot of unique ways to cultivate the right financial mindsets for kids. You can ask kids to compare prices as well as benefits with three products.
Step 3: Get them started in investments early.
After teaching your kids sound financial habits, you can now proceed to teach them about the value of investments.
Choose between opening a traditional or Roth IRA. Children can enjoy the privileges of being in a 0% tax bracket because they have very little to no income. Since they don’t pay taxes, a Roth IRA is a better option for them.
Once your child’s IRA has been set-up, you may now open a custodial brokerage account for them.
Step 4: Open a brokerage account for your children.
Since minors are not legally allowed to buy and sell stocks and properties, parents — or guardians in the absence of the parents — should administer the kids’ portfolio.
One should note that the law has set certain limits on the kind of assets that can be purchased in a custodial account. Typically, these are only mutual funds and other regulated investments.
Take this time to educate your child about taxes as you file tax reports on their behalf as minor beneficiaries. Emphasize how important diligent documentation and investing logically are by going through the records.
Once the minor becomes an adult, ownership and management of the account should be transferred from the custodian to the beneficiary.
Step 5: Buy stocks for your kids and show them the ropes.
Once the custodial brokerage account has already been set up, you can now start showing them the ropes of investing bit by bit.
Start with investments that are more passive in nature such as index and mutual funds. Teach your children in ways they can understand how to identify company strengths and weaknesses. Once they recognize a company’s strengths and weaknesses, you can start teaching them about blue-chip companies.
Securing your children’s future goes beyond just providing for them financially. It entails imparting to them wisdom in the ways of the world, including financial management. As parents, it falls to us to ensure that we equip our kids with as much knowledge and guidance that will set them up for financial stability.