Financial skills are not innate; they are taught. As children grow up and learn about the world around them, the role of finance might not seem as critical - but it can play a huge role in their development. Financial literacy refers to the fundamental concepts, principles, and skills in finance, and there are a lot of benefits to teaching kids financial skills early on. Studies have consistently shown links between economic well-being and financial literacy from an early age, especially regarding skills such as financial planning, investment principles, and general education on financial concepts.
What does financial literacy for kids mean?
Simply put, financial literacy refers to knowledge and skills relating to finance, such as investing, budgeting, and managing personal finances as they grow older. For example, savings accounts, an investment account such as a Roth IRA, and a tax-free account for kids are all different aspects of financial literacy that you can start teaching children at an early age.
Teaching kids about money, such as starting a simple savings account, isn’t just about giving your child a head start in the financial world. Steps like these can also help ensure your child’s future is secure since they have the tools and knowledge needed to feel confident managing their finances as they grow up.
Financial literacy is a process that evolves over time, but teaching children the foundational aspects of it makes it easier for them to navigate financial decisions and money management as they become older.
What are the different ways to teach kids to save money?
Financial education for children can start at various ages depending on the state and the financial products available.
Many states have programs in place to encourage financial education. And with more financial products such as accounts for kids, parents now have more tools available to help parents teach children about personal finance at an early age.
If you would like your children to start learning about money, there are a few different options available. You can open different types of brokerage accounts and start investing in children’s financial future by involving them in it. You can even start with small steps, such as setting up an Acorns account for kids to start them with small investments so they can see their money grow incrementally.
Additionally, you can also enroll kids in courses such as Juni’s Finance, Investing, and Entrepreneurship Courses for Kids. Courses are a great way to introduce kids from young ages up to high school to financial literacy concepts and skills that can help improve their financial future. These skills are not taught in traditional school settings, which is why courses such as these can be integral to helping kids learn about financial and business skills for future success.
Juni’s Online Investing Classes fit with schedule and needs, including private 1:1 classes that cover different financial concepts, including making investment decisions, basic economic knowledge, stock market investment, and more.
How can I start teaching my children about investing?
Depending on what kinds of skills you are looking to teach children, many different types of accounts are available.
Before diving in with investing and saving for children, it’s essential to work with a tax advisor or finance professional to understand how custodial accounts work and any potential tax implications as you explore investment options with children.
Some accounts may incur capital gains taxes if withdrawals are made, which can be used as a learning tool, but of course, may not be the best option. It’s crucial to understand what the best investment options are depending on what you would like to teach.
However, if you’re thinking of exploring options to teach children saving and investing, there are many Investment options for children, including:
Essential savings accounts for kids: Many banks now offer youth accounts that children and parents can manage together. Children can learn about budgeting and saving and concepts such as interest rates. Eligibility will vary depending on state rules, so it’s worth checking with banks and credit unions to see what type of account would be best.
Custodial brokerage account: A custodial brokerage account, such as a Fidelity brokerage account, can be used by parents and children. With this account, parents and children can set financial goals and invest in financial products such as index funds, exchange-traded funds, mutual funds, and the stock market. These types of accounts can be a great way to teach children about investment strategies or set up college savings early on.
Uniform Transfers to Minors Act (UTMA) Account: A custodial brokerage account may also be referred to as a UTMA account. A UTMA account or a UGMA account are custodial accounts to help adults and kids save and invest money. Adults can manage the account on behalf of their child. When a child reaches a certain age, they can take control of their UTMA accounts, but it essentially serves as an investment vehicle. The Uniform Gifts to Minors Act is designed to help adults set property or assets aside on behalf of their minor children.
Kid-friendly debit card and/or credit card: Many banks now offer options for parent and child-managed accounts, including debit cards and credit cards. Using fundamental tools is another way to learn about spending, money management, and overall budgeting. In addition, as children grow older, they can use these types of cards for education expenses and daily living.
Individual retirement accounts: There are options available to work together with children to help them come up with long-term savings plans using accounts like a Roth IRA. You can open a custodial account for retirement and college savings, such as a 529 plan. Kids and parents can have a custodial IRA and come up with long-term investment portfolios. Many of these accounts have robo-advisors for retirement savings. However, these accounts have contribution limits, so they might not be suitable depending on financial goals.
Working with a financial advisor: If you are unsure where to start teaching kids about money, you can work with a financial advisor to identify the best investment options for educational purposes. They can provide targeted financial advice to help you and your children achieve financial goals while learning important lessons about money. They can also advise on the tax rate and potential income tax issues based on the type of accounts you are interested in opening for your child or on their behalf.
As your kids learn how money works, really, there is so much more to explore for young children!
There are other brokerage services and accounts available once your child or your teen goes from beginner to advanced. You can use custodial accounts to invest in stocks, including fractional shares and ETFs. Many of these accounts come with tax advantages that can be a great incentive to open these types of accounts.
As kids see the earned income that comes with these investment accounts, it can be a great incentive to stay motivated and continue to build on the financial skills they are learning.
Markets will go through a downswing, of course, but that’s part of the learning process. Financial literacy is about teaching kids how to weather the storm when the markets go down and skills needed to take advantage when markets are going well.
Empowering children to take more control of their financial future can start at an early age, especially with educational investment for kids courses available that cover topics that school may not. In addition, with so many different types of financial products available, there are plenty of ways to teach kids about money starting at an early age and create a more secure financial future for children moving forward.
Financial literacy plays a huge role in children's growth and development. Whether it’s small steps like a savings account or bigger financial learnings, these are all crucial skills that children need.