Could you imagine if you were born with a savings account and earned compound interest on all those birthday dollars you’ve ever received? The world would probably look a lot different if that were the case.
Even if you haven’t been saving since birth, that doesn’t mean you can’t change the future for your kids. You can.
At McClure Wealth, we recommend families start investing in their children’s financial wellbeing starting the day they are born. We work with many multi-generational families that want to leave a legacy for their family. Starting with the youngest in your family, here are some ways you can inspire your kids to save and set them up for success:
Use money as an award. Remember how exciting it was to receive a gold star? The same goes for money these days. Consider rewarding your children with automatic allowances (and an understanding of responsibilities that go along with it). As long as everyone follows through, the allowance is received. Then, give your kids the freedom to choose how they spend or save it.
Instead of forcing, encourage savings. Start teaching your kids early to save for financial security by setting save by dates for things they want to buy. Generally, it’s wise to save 20-50% of earnings so why not teach your children that early in life? Plan small self-care perks and purchases of things for your children that inspire their healthy hobbies or habits. Consider for giving small bonuses or “interest” for keeping it in their savings.
Open a banking account with your child. There’s something special about going to a bank and opening your first savings and checking account. Also, depositing money into a bank and watching the magic of compound interest take hold. Make sure you involve your child every step of the way and make the banking experience a part of “getting older” (in a good way). Your child will look up to you for trusting them to make such a big-person adult decision to maintain their own account. Of course, if you set up an investment account or trust for them before speaking age, it might be a good time to set up a separate account for distributions and allowances by the time they are 12 and possibly venturing off on their own with their friends.
Show them how short term decisions impact long term. Explain to them in math if they save a certain amount of dollars until they are X age, they might expect to have X. If we teach children at a younger age how smart financial decisions can bring great results in the long term, we will all be better off.
Open a Roth IRA as soon as your kids start working
When your children obtain their first job, we recommend you start them in a Roth IRA right away. It will get your children used to the idea of investing. Time is the most valuable thing in financial markets and this money has the potential to grow tax-free for life. What better gift is there than that? If they’re not excited about it, perhaps offer to match their contributions for the first year.
Interested in hearing and having more financial education resources for your children? Reach out to us at [email protected], we’d love to discuss ways to empower your kids for their financial future.