Investing for Kids: Principles to Put into Action | U.S. Bank (2024)

Key things to know

• Activitiessuch ashousehold chores, opening a checking account andgetting a jobcan help your kids understand the importance of saving and investing their money.

• Growing your children’s financial literacy can give you and them the confidence toeventuallytake a leadership role in managing the family’s wealth and legacy.

Wealth can help you provideyour childrenwithopportunities,experiencesand possessions thatyou didn’t havewhen growing up.

While access to these resources is a blessing in most instances, it can provide additional challenges in raising appreciative and self-sufficient children. Wealth can make it easier to indulge children, and at the same time add complexity that makes parenting harder. Moreover, it doesn’tnecessarily produce happier kids or, later, self-sufficient adults.

The reality is thathaving everything you want when you want it can inhibit resilience and produce some unhealthy expectations. By providing too much comfort and immediate gratification for your children without appropriate responsibilities, you may inadvertently limit their drive and sense of purpose. Alternatively, learning to make choices, deferring gratification and living with the consequences of choices are an important part of growing up and becoming financially self-sufficient.

The more you can do to help your children become financially self-sufficient, the more confidence they and you will have in their ability to eventually take a leadership role in managing your family’s wealth and legacy.

Helping kids understand the purpose and limits of money

As a parent, youplay an integral role in helpingyourchildren learn self-sufficiencyand financial literacy.Providing ample opportunitiesfor themto use money, make choices about how to spend that money and then to live with choices is important work.Teaching kids about money will affect their financial skills for the rest of their lives.

Equally important is helpingyourchildren feel self-sufficient by not bailing them out when they cannot make a choice, or when they regret their choice.If your kidsknow they can always count onyouto fulfill their wishes and cover their expenses, including financial mistakes,they’reat risk of never building confidence in their own financial capability. That risk may carry particularly harmful consequencesif you’rehoping to successfully transition wealthto the next generation.

Ifyou want your children toobtain thefinancialskills and experience to manage their own money now and, eventually, the wealth they’ll inherit, they’ll need to learn a couple of key conceptsand financial basics.

• Money serves multiple purposes.Whenthey’reyoung, children equate money almost exclusivelyasa tool they can use to pay for something and get itimmediately. As their knowledge and sophistication grows, they’ll realize that money is a resource that can beused not only forbuyingmaterial possessions and experiences, but alsofor saving, investing in their future and helping others throughcharitable giving.

• Money and wealth are not infinite.Whether children are given a little or a lot, they must learn to make choices about how they use their financial assets.You have a great opportunity to have conversations about your family values around money and help your children explore the satisfaction they getfrom spending,savingand sharing their own money.

Activities to help teach your kids about money

Money management lessons aren’tlearned in a one-time conversation but through years of practice.The following six activities can help your childrenunderstandkeyfinancialconcepts and practiceimportant life-longfinancial skills.

Household chores

As early as elementary school, your children should begin contributing to the household tasks, and in some instances, making money for their “work.”For example, you may require that as a member of the family, they are responsible for making their bed orhelping with thedishes.You couldmakeother tasksoptional but pay a small amount for the work, such asvacuumingthe house orhelping with laundry.

Consider makinga chart listing the “jobs” and amountsthat can beearnedfor each, and letyour kidsmark the chart after they’ve completed a job. Even if your five-year-old earns just $1per week through this,they’llfeel pride and excitement whentheyreceive the money andwillassociate it withtheir work.

Asyour kidsget older, you can increase the level of the jobs, responsibilities and amounts earned.Encourage them to create “spend, save and share” accounts for their money.It’simportant to letthemspend the allotted amount on what they want, rather than what you think they should.They’llundoubtedly make somechoice you wouldn’t, butthey’llstart to learn fromany mistakeswhile the stakes are very small.

Budgeting

By the time your children reach middle school age, they’re ready to beginmanagingtheir money. Considergiving money or an allowance tothemonce a month or even once a week rather than when they need itand encourage them to develop a budget.Budgeting is a tool for learning how to live responsibly. When a child creates a budget and successfully follows it,theybuildself-esteem and confidence.

Setting up a budget with your child is as easy as helpingthemchoose categories (spending, saving, giving to others) and how much to allocate to each. Having a budget teaches your child the concept of making choices and the difference between needs and wants. Skipping that trip to the movies to save for something more expensive but highly desired will help teachthemhow to delay gratification and stay focused on a long-term goal.

Also consider modelingthe behaviors of money management. Even thoughyouhave the means,you’re on abudget too.Use the phrase, “it’s not in our budget” instead of “we can’t afford that.”

A key to budgetingfor kidsiscommunicatinglimits.Help them understand that you’re not there to bail them outif the budget is exceeded. Kids need to learn the consequences ofgoingoverlimits.It would be easy to step inif your child overspends;we’rewired to savethemfrom themselves and their own money management disappointments. Resist the temptation.

Managing a checking account and debit card

The next step is to help your child open a checking account and determine the amount that you or your child will deposit monthly. Youcanopen an account jointly with a child oncethey reachage 14 (an individual must be 18 years of age to have his or her own account).

Typically, the account will come with a debit cardthat gives your child easy access totheirfunds. Establish some ground rules about how and when the account will be used and how frequently you and your child will monitor the balance. While it’s easy to simply verify account balances online or throughabalance inquiry, encouraging your childtobalance the account to the bank statement every month is a great learning exercise.

If you feel your childisn’tquite ready to managetheirown bank account, setthemup with a prepaid debit card. This allows your child to make purchases against an amount you have established without the opportunity to incur debt by overspending. In addition, help your child open a savings account to separate and keep track ofitemsthat fall into the longer-term categories, such as saving for a car or philanthropic goals.

Managing a credit card

After demonstratingtheirability to manage a checking account, your child may be ready for alow-limitcredit card. Credit cards provide great opportunities totalk with your teen aboutthe concepts of borrowing and repaying money, the cost of carrying balances, and how to build a strong credit history and credit score. Be sure to agree to ground rules about how and when the card will be used, and how your child will pay off balances. Most banks will require you to co-sign for a minor requesting a card.

Handling an after-school job

Your children can benefit greatly by having a job while in high school, even if it’s just a summer job. Apart from the financial benefits, a job can provide valuable appreciation for the work it takes to earn money and a perspective regarding how hard many people work for a modest income. A job gives kids another set of peers, takes energy and provides a sense of accomplishment.

Another benefit is thatit requires your child to be accountable toother adults, beyondyou,theirteachersortheircoaches. An employer willhold them to high expectations and help teach them responsibility.

Monitoring an investment account

Finally,consider introducingyour high-school or college-age kids totheconcept of investing. Opening an investment account in your child’s name can provide a great vehicle for ongoing communication about important financial concepts, personalgoalsand family values.

For instance, this may lead to discussions aboutlong-term goals,riskand return,compoundingand how stocks and bonds work.In particular, the value of compounding returns is hard to grasp untilyou’veexperienced its benefits.Investingalso givesyour kidsan opportunity to learn aboutthemarkets, companies and how they grow.

Monitor the account performance together. With an older teen or college-age child, watch out for red flags (i.e.,if they wantto “play” the market). Notably, if your child is a minor under state law, the necessary account is called a Uniform Transfer to Minors Act (UTMA) account, andyou’llbe the custodian of the account until your child reaches age 18 or 21, depending on the state.

Begin the journey

Helping your children learn to become financially self-sufficient can be one of the most satisfying jobs of parenthood.You’rehelpingthem finda sense of accomplishment and pride in their ability to manage their own money. You’re also allowing them to learn from their financial and decision-making mistakes – and to live with the consequences while the stakes are relatively low.

The more you can do to help your children become financially self-sufficient, the more confidence they and you will have in their ability to eventually take a leadership role in managing your family’s wealth and legacy.

Learn how Ascent helps multigenerational families manage their wealth todayand createa legacy for generations to come.