Parenting is rewarding, but it can also be overwhelming. Not only is this small child dependent on you for survival, but they are also looking to you as an example.
Children need an example for everything from walking to developing practical financial skills.
Parents need to take early and intentional steps to help ensure their child is prepared for the challenges and practicalities of life. Frequently, however, parents forget to invest the time and energy in their child’s financial life.
Finances seem far off when your child is just learning to walk, but creating habits and mentalities early on can mean big success later in life. Parents can encourage financial literacy and lifelong success by making a few small changes in how they approach their child’s financial life.
Parents can quickly learn how to buy life insurance for a child or set up the right checking account. These small steps can have big impacts down the road.
Similarly, parents can develop and encourage a love for learning and growth throughout their home.
Children will enjoy these alternatives to staring at screens all day, and parents can feel confident in their child’s future.
Children and Money
Being concerned about your child’s money or financial future is normal. Many parents hurry to set up a traditional savings account in the first few years of their child’s life to help with large future costs or purchases.
This was a good idea and had big impacts a few decades ago, but in today’s world children need more than a savings account. Children need to understand more than just what money is and how to put it in a bank account. They need to be taught how money works.
Too often, parents forget to share the practical side of money — the skills a person needs to both earn money and spend or use it wisely. The truth is a lot of children are in the dark about their financial abilities or needs until they’re moving into their first apartment.
Without the skills and knowledge to be successful financially, children turn into adults who don’t know how to wisely handle their finances. This can have major impacts in the future. It’s important that parents start creating sustainable and wise habits in young children.
Financial Literacy and Success in Children
There are so many ways parents can help develop the skills and mentality for financial success while building a nest egg for their children. It’s really a partnership between the parents and a child that leads to financial literacy and lifelong success.
#1 – Create a Saving Mentality
Many times, people see money as something to be both made and spent quickly. In reality, money is a tool that can be used as well as saved. People forget to plan for common but expensive purchases like a car, house, or wedding.
If children are encouraged to save even a small portion of their earnings, they can create a saving mentality. Children who save money are more likely to turn into adults who save money. They will be able to look to the future and plan for larger purchases or unexpected expenses.
It can start small. Encourage your child to save for that new video game, the newest iPhone, or their future car. Talk with them about what their short- and long-term goals are, then create a savings plan to help get them there. Make it manageable and fun.
#2 – Open the Right Accounts
One of the best ways to encourage financial success is to open the right bank accounts. The number and type of accounts you open for and with your child will depend on a number of factors. Younger children need help with saving, while older children making their own money need help with management and future planning. All children, however, can benefit from the simplest bank accounts.
Children who are making or handling money need to have a safe place to put it. Establishing a basic checking account is a good first step for older children who may be more apt to spend money on a daily basis and need to develop very practical money management skills.
When it comes to saving, a good place to start is with a high-interest savings account. This type of savings account has a higher rate of return on the money put into it. Children can begin creating an emergency fund for those larger, unexpected expenses life often throws our way.
Children who are working and making their own money can really benefit from a Roth IRA. IRAs are often thought of as only retirement accounts, but they can and do offer a lot more. These accounts are extremely flexible but also help decrease your child’s taxable income.
Roth IRAs are often paired with taxable brokerage accounts. For children who are making money in the workforce, these accounts can be powerful wealth creation and investment tools.
It’s also a good idea to consider a health savings account, or HSA. These accounts can be opened while your child is still covered by your health insurance, but will create great financial habits.
For younger children, however, parents need to take a more proactive and diversified approach to bank accounts. A 529 college savings plan is a great place to start a savings plan.
Parents can contribute to this account as soon as a child is born, and it offers great tax benefits. The money saved in a 529 can be withdrawn and used for college and post-secondary expenses.
#3 – Add an Authorized User
Credit is powerful. A person’s credit score will determine their ability to get loans and even some jobs. The unfortunate part about credit is that it’s hard to build. Children are most often put at a disadvantage because they aren’t able to build credit of their own until they are out on their own.
Parents, however, can help build their children’s credit even in their earlier years. Consider adding your preteen or teenage child as an authorized user on your credit card. This gives the credit card company the ability to report your child’s credit use and begin building credit.
Make sure that your child understands how a credit score works, and how credit impacts auto insurance and loans.
How much access the child has to the actual credit card is up to the parent, but any use on the card can be used to further your child’s credit and financial future.
#4 – Credit Cards as Tools
It’s a good idea for parents to discuss the power of credit cards with young children. Children generally get credit cards when they leave home, and there is limited to no oversight. In this case, credit cards can be very dangerous.
Encourage healthy habits with credit cards. Consider secure credit cards to help teach children the benefit of credit without abusing them.
#5 – Develop Practical Skills
The simplest and perhaps best place to start is by creating and practicing practical financial skills. Bring your child into the financial arena by showing them how to budget, give, and pay bills.
Teach them different ways to earn money through multiple streams. Not only will your child be gathering knowledge, but they will also see these skills in action and in real time.
#6 – Get a Life Insurance Policy
Life insurance for children may seem unnecessary, but ensuring a child as a life insurance policy early on can offer many benefits.
Life insurance policies not only aid in terrible and unfortunate circumstances, but they can also be used as savings plans and ensure future insurability.
Life insurance policies for children can be very affordable. These policies can also be added to existing policies or created as stand-alone policies.
The decision to buy a life insurance policy for a young child can get a lot of different opinions, but like most decisions about young children, it’s a personal choice made by parents.
It’s important to not only consider policy options but also examine your family’s needs before purchasing or adding a policy.
Your Home’s Style and Family Time
It can seem overwhelming — the need to set up more than a couple bank accounts and teach your child all the necessary skills for future success.
The truth is, however, these skills and life lessons don’t have to be all-or-nothing, everything all at once. As a parent, you can create a fun, engaging, and comfortable environment that more naturally lends itself to teaching and learning.
To create a home that encourages more quality family time, create and style spaces that foster these moments. You want to create spaces that are open and inviting but also allow people to gather close together.
Think of the common spaces as places for the family to meet together and learn. Consider how your family might work together to create and design these spaces. Add in elements that help motivate or encourage family members and children.
Make sure to provide plenty of opportunities for real-world practice. The learning doesn’t need to be too narrow or specific. You want these spaces to simply offer the space to learn, play, talk, and communicate freely.
At the same time, children, especially teenagers, need space to call their own. They need a place they can relax in, close the door, and spend time entertaining themselves or recharging. To create these spaces, invite the child into the process. Look through magazines for inspiration and find great bedroom ideas for boys and girls.
Financial literacy and success, like most things in life, are not one-time endeavors to be checked off the list and forgotten. These are habits, routines, and mentalities to cultivate. It’s time to invest in your child and their future.
Laura Gunn writes and researches for the life insurance comparison site, QuickQuote.com. She is a mom who wants to set her children up for lifelong success while sharing those tips and tricks with other parents.