Updated: Mar 15
The one thing that's never really taught in schools is how to navigate the world financially and exactly what to do with your money. Once a child begins earning money, whether they have a lemonade stand, a garage sale, or their first job, they now have a financial life and are a participant in the economy, taxes, and more. Many parents wonder where to start so I'm sharing my story with you in hopes your family and children will benefit as mine has.
When my daughter was born I wanted to do everything I could to ensure she had a solid financial start in the world. I knew the future would be very costly as I witnessed the major differences between the financial lives of baby boomers versus millennials. One of the biggest things I witnessed was that the new generations did not have the same level of home ownership, access to a pension, and were burdened with huge amounts of student loan debt. Clearly things changed significantly since the torch was passed by the greatest generation and I needed to help her with a head start.
The first thing I did was open a 529 Plan to help get the ball rolling for college. I will discuss the specifics of 529 plans in a future article. Since I had no way to predict the future, I came up with a split the pot strategy and also started a custodial brokerage account for her to begin growing investments for her future. I funded these accounts with my tax refund checks every year, along with bonuses from work, and whatever extra money I could contribute monthly.
Last, I took out a whole life insurance policy for her with high paying dividends because I wanted to lock in a super low premium for her in a permanent policy where her payments would never go up in the future and she would always have the option to withdraw the accumulated cash value tax-free in the future.
The Initial Plan Is In Place. Now What?
My daughter has always been interested in money since she was a baby so it wasn't difficult to get her engaged in activities involving money and educating her about it. She always had money of her own, whether it was a pile of coins, or cash she received in a birthday or Christmas card. When she was 3 years old, I ordered a cash drawer for her to organize and arrange her money. Handling cash and coins helps kids quickly improve their counting and math, as well as the experience of actually handling money familiarizes them with it much more. Alternatively, you can save cash, coins, and other valuables in a small cash box. Now we have both, but we started with a drawer and she uses that the most to access her physical money at home.
Step One - Get something to store their physical money in.
They will learn counting, denominations, fractions, multiplication, and so much more.
Below you can get a cash drawer and cash box each for only $10.
Books Are Important
As children are developing, it is very important we read to them. I teach my daughter about many things and books about money and finance are just as important as anything else, if not more. Money and finances are life skills and it is our responsibility to set our children up for success and educate them.
Here are a few books that will benefit children of all ages, starting with beginner books for younger kids, ending with a book for older kids to learn the basics of investing. Each book on this list is approximately $10 and will provide great lessons for the special kids in your life.
It Is Never Too Early For A Bank Account
Saving physical cash is fantastic, but it is merely one component to saving. Cash can be lost, stolen, damaged, earns no interest, and is not FDIC insured. Keep some cash, but put your money to work for your child's future, as soon as possible, while time is still on your side. Bank accounts are ubiquitous these days with myriad options from brick and mortar banks and credit unions, to award-winning online banking apps such as Chime.
Open a bank account for your children as soon as you can. Teach them everything you know about saving money and show them their accounts and the balances often so they are engaged in the process of wanting to save their money.
Saving is one thing, but what happens when your child wants to buy a Lego set with her hard earned money, or a Monopoly game? You will need a way to teach them how to safely and responsibly spend their money.
*Here are the 5 Best Debit Cards For Kids - https://www.investopedia.com/best-debit-cards-for-teens-5079369
This is great reading and I narrowed it down to number one for you. The Green Light Card is a fantastic way to introduce your child of any age to the world of spending and handling money. As a parent you have complete control of how money is disbursed to their account, setting the interest rate they earn, freezing the card, creating in-app chore lists for your child to earn allowance, and so much more. The most fun part that kids enjoy is that they have their own debit card with a large photo of their face on the front and this gives them a sense of real empowerment and autonomy as young people. I will mention that the Green Light Card and account has a $5 fee per month, so if that's an issue you will need to weigh out the other conveniences it provides and determine if it is fitting for your financial goals for your family.
Alternatives to Cash and Other Stores of Value
Saving has been an adventure for my daughter. A while back she really wanted to have real treasure. We looked into physical gold and silver and although gold is very nice, silver is much more economical to purchase as it is a fraction of the cost of gold. There are many places to pick up precious metals if you have a place for them in your savings and investment plan, or the interest. Due to the scarcity of gold and silver, they will only be worth more over time. As long as you are buying the right coins, they can also be used as legal tender, just like cash. We like the American Silver Eagle coins and there are many variations. The American Silver Eagle is currently on sale at https://www.jmbullion.com along with gold and other various precious metals.
Another global asset and store of value are cryptocurrencies, such as Bitcoin. Bitcoin is often referred to as digital gold as its stratospheric rise has placed it in the forefront of the financial markets and the media. Wall Street and even the richest man in the world, Elon Musk, publicly support its adoption and usage.
One of the common misconceptions about Bitcoin is that you are priced out of owning some if you can't afford to buy an entire Bitcoin, which recently peaked at a high of over $58,000 per BTC this month. Bitcoin is an ingenious technology and you can own it the same way you own a stock, purchasing in whatever denominations of dollars are fitting for your budget and your comfort level. Just like gold, Bitcoin is a scarce resource and is also the most valuable resource the world has ever seen. It is worth learning more about if you don't own any. In the future you will probably wish you did purchase some in 2021. There are many places nowadays to buy and sell Bitcoin, however the most popular exchange is Coinbase, who just filed for an IPO today to go public with their stock. To learn more about Bitcoin here's a great interview of one of the foremost experts in the world, Andreas Antonopolous.
Bringing It All Together
Some people are old school when it comes to money, but I want you to know that your children are the smartphone, virtual reality, quantum computing, Space Colonization, and Artificial Intelligence generation. They are born with all the most amazing technologies we could have ever dreamed of and they will create and lead the new innovations of the future. I take a very hands-on approach with money with my daughter. She is only seven years old and at this time has no need for her own laptop or mobile phone, however she uses an iPad as the hub to manage and track her finances.
I know everyone does not have an iPad, want one, or can afford one, so I made the final step affordable and possible for everyone. The Fire Tablet is just $50 and can do everything necessary to help your child connect with their money. Aggregate all of their assets into the tablet and they can interact with them anytime.
Add app for their Bank account
Add App for their investment account
Add App for their College Savings
Add App for their Cryptocurrency Wallet
This is how I have my daughter set up and she could probably teach a class to adults on saving and how to grow your money, investments, and how Bitcoin works. She understands what stocks she owns, how compounding dividends work, how the dollar is affected by inflation, what assets are, and why she needs to multiply her money through investing. She has goals and has a plan and a strategy of what to buy in her portfolio. We review her assets and talk about them regularly and discuss plans for what we want to invest in in the future and how we want to grow our money.
I encourage you to become active with your children and take part in the education with them. The future is unknown, but what we can predict for certain is that understanding how to navigate the rapidly changing landscape of money is essential for this upcoming generation and it is our job to provide the tools and resources so they may not only survive in this digital world of the future, but that they may be confident and thrive.