If I had a dollar for every time I heard a phrase like…
- They just don’t teach personal finances in school
- I wish my parents modeled healthy money management when I was a kid
- I’ve had to undo a lot of bad money habits I picked up in my early years
…I’d be investing those dollars in my tax-advantaged retirement fund and watching it grow tax-free!
The truth is, money is complicated no matter who you are. And the older you get, the more messy it becomes. That’s why the earlier you teach your young ones how to earn, save, and give, the better you prepare them for smart money management when they’re your age.
Today, I want to share three ways my wife and I teach our kids about money— and prepare them for a confident financial future.
I’m a dad of three young ones— two boys and a girl. They’re a huge part of my life! They’ve also significantly impacted how my wife and I handle our finances. And whether you have little kids or teens in the house, these three strategies can help you model financial wisdom, generosity, and proactive preparation, too.
Kid-Friendly Finances Tip #1: Start a 529 savings plan
A 529 savings plan is a special state-sponsored savings account that can be used to cover your child’s educational and college expenses, like college, trade school, and even K-12 private schools.
These accounts are tax-advantaged in that your contributions grow tax-deferred. You don’t have to pay taxes while the money is in the account, and qualified withdrawals are usually tax-free at the federal level, and often at the state-level too. Qualified expenses, like tuition, books, and room and board can add up quickly. That’s why 529 plans are a great way to set your child up for educational success and reduce your burden in the meantime.
I recommend talking to your children, and especially teens, about their 529 plan. Let them know that education, whether it’s a college, university, or trade school, is so valuable, you started saving for them years ago. It’s an investment worth preparing for and pursuing.
Kid-Friendly Finances Tip #2: Use the Uniform Transfers to Minors Act (UTMA) to help your child save
The second financial strategy we’re using in our home to help our children practice saving from a young age is leveraging a UTMA account.
A UTMA account allows children under 18 (or 21 in some states) to receive up to $17,000 a year in financial gifts, including cash, real estate, and some assets. The child doesn’t need a guardian or trustee to “own” the account, but you can name a custodian who can manage and invest that money until the child comes of age.
What I like about UTMA accounts is that it gives your child the opportunity to practice investing, read financial reports, and begin to understand the deeper details of saving for long-term goals. All skills we didn’t learn until we were well into adulthood! They can research and choose stocks, or watch the money grow in a mutual fund, all while saving for college, their first car, their wedding, or whatever matters most to your family. Plus, any earnings from your child’s UTMA account are taxed at a lower rate.
Kid-Friendly Finances Tip #3: Start a “family economy”
In our household, we use a jar system to tangible show our kids how savings adds up. We saved a bunch of old spaghetti sauce jars and labeled three for each child, and together, we watch their savings and generosity grow.
One jar is labeled “Spending,” and they can use this (within reason) on things they want to buy for themselves. The second jar is labeled “Saving,” and that one we usually keep tucked away so they’re not tempted to spend it every time they see it. The third jar is labeled “Giving,” and we all give our Giving jar funds together, as a family.
When our daughter, for example, earns $7 for doing a chore, we give her a $5 bill and two $1 bills. The $5 can go straight to her spending jar (where it doesn’t stay for long!). Then one $1 bill goes into savings, and one $1 bill goes to generosity.
We’re setting the habit early that money isn’t just for spending on whatever you want as soon as you have enough to buy it. Money has impact. And by saving 10% and giving 10%, you can watch that impact grow.
At Cook Wealth, our strategies support you— and your whole family
We know money is about so much more than things and stuff. Money gives you options. Money gives you freedom and balance. And when managed well, money can be a powerful force for good.
If you’re looking for a holistic approach to wealth management that considers your cash flow and your quality of life, get started by booking an intro call with our team.