What Parents Should Be Doing to Ensure Their Child Has a Good Financial Start
I know we all want our kids to have good credit, a nice savings, and a decent handle on financial literacy. But what can we do as parents to give them these things to ensure their financial start is a good one?
What can we being doing right now to ensure that their financial start is a good one? How can we teach our kids the ins and outs of savings and financial literacy? How on earth can I ensure my child has a good credit history as soon as they are old enough to finance/lease their own car? Which in most states is usually 18!
What if I told you that there is a way to do all of those things even if your child is young. What’s even better? Your child can have a good credit history as soon as 18 years old.
Ok! But how do we do that? Keep reading! Here is 5 ways you can start ensuring that your child has a good financial start into adulthood.
1.ADD YOUR CHILD AS AN AUTHORIZED USER ON YOUR CREDIT CARD:
Most major card issuers allow you to add a minor as an authorized user. Some of those impose a minimum age, others don’t. A few cards prohibit cardholders from adding minors altogether. At an appropriate age, adding your child as an authorized user on your credit card can help your son or daughter build credit.
Important Disclaimer: If you ever run into financial difficulties and you stop making payments on that card and your credit tanks as a result, your kid’s credit will take a hit, too, unless you remove him or her from the card quickly. Instead, it’s best to wait until you’re in good financial shape. Never add your child to a credit card that has poor payment history and credit utilization is through the roof! Unsure of these things? Check your credit score ! MyFICO is the leading expert in providing accurate scores and reports.
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MAJOR CREDIT CARD COMPANIES AGE REQUIREMENT:
Bank of America, Capital One, Citi, Wells Fargo and Chase all allow children to be added to a primary account holder’s card regardless of age.
Others, Like American Express, Discover, and US Bank allows minors depending on age. But even putting your kids on your credit card as an AU (authorized user) for a few years is beneficial to their credit history.
2.OPEN A SAVINGS ACCOUNT FOR YOUR CHILD:
You can open up a savings account for your child as soon as you get their social security number in the mail as a newborn. The earlier you start, the bigger the savings.
Save the amount that you can afford. My husband and I have four children. So money is always tight! But we manage to save $5 per child each time we get paid which is weekly.
Lets do some math: There are 216 months in 18 years. So by the time they are 18, saving $5 a week will result in $20/month for most months. By the time they are 18 they will each have $4,320 in their savings account. That’s a decent amount to kick off your kids savings when they turn 18. What a wonderful gift!
If you’re not satisfied with that amount, then whenever you come across more money than usual (tax refund, hefty settlement, bonus from work, and etc.) make sure you add some of those funds to your child’s savings account as well.
Having a hard time saving money? Check out my article: 6 Money Saving Tips for Parents.
3.GET A LIFE INSURANCE POLICY FOR YOUR CHILD:
Not just any life insurance. You want to make sure the life insurance policy you choose allows you to have cash value. You also want the plan to allow your child to continue on the coverage on their own into their adulthood. This ensures that your child continues to carry their own life insurance coverage when they become adults. If they decided not to, then having that cash value on the plan allows them to add that onto their savings.
Most policies premiums varies based on the amount of coverage you choose, your child’s age at the time of your application, and the state where you live.
There are many plans out there but my favorite is Gerber’s Grow Up Plan or Gerber’s Young Adult plan (if your child is 15-17 at the time of your application.) These plans allow you to get your child’s financial start off to a good one, as early as 14 days old.
Each time you make a monthly premium payment for your child’s Gerber Plan, Gerber Life sets aside a small amount of that money. Over time, this becomes the cash value of your policy. This money is available for you to borrow (I wouldn’t suggest unless under extreme circumstances) if you ever have the need for cash. But the best part, As an adult, your child (age 21) will have the option to turn in the policy and receive the available cash value or continue on the coverage for themselves.
ALTERNATIVELY: You can also start the Gerber Life College Plan. The good thing about this plan is that you are paying for college + adult life insurance protection in one easy plan. Unlike 529 plans or educational IRAs, you can use the payout money from your Gerber Life College Plan for college expenses or anything else. So whether your child decides to go to college or not, the plan still adds cash value that they can keep when they turn 21 or continue the plan into their adulthood on their own.
4.MAKE EVERY MOMENT A FINANCIAL LITERACY TEACHING MOMENT:
Start teaching your child financial literacy as early as they can comprehend.
3-5 YEARS SHOULD KNOW THE FOLLOWING AS BEGINNING FINANCIAL LITERACY LESSONS:
- You need money to buy things
- You earn money by working
- You may have to wait before you can buy something you want
- There is a difference between things you want and need
6-10 YEAR OLDS ARE CAPABLE OF HAVING A CONVERSATION ABOUT THE FOLLOWING FINANCIAL LITERACY TOPICS:
- You need to make a choice about how to spend your money
- It’s good to shop around and compare prices before you buy
- It can be dangerous to share information online
- Putting your money in a savings account will protect it and pay you interest
11-13 YEARS CAN BETTER UNDERSTAND MORE COMPLEX ISSUES REGARDING FINANCES. SOME TOPICS TO DISCUSS INCLUDE:
- You should save at least a dime for every dollar you receive
- Entering a credit card number online is risky because someone could steal your information
- The earlier you start to save, the faster you’ll benefit from compound interest. Which means your money earns interest on your interest
- A credit card is a type of loan. If you don’t pay your bill in full every month, you’ll be charged interest and owe more than you originally spent.
14-18 YEARS HAVE DISPOSABLE INCOME AND ARE THINKING AHEAD TO COLLEGE YEARS AND ADULTHOOD. HERE’S WHAT THEY SHOULD KNOW:
- It’s important to know what a college will cost before you choose it
- You should avoid using credit cards to buy things you can’t afford to pay for with cash
- Your first paycheck may seem smaller than expected since money is taken out for taxes
- Save and invest money you earn in a Roth IRA, 401K, CDs. etc
18+ YEARS AND OLDER WHO ARE LIVING INDEPENDENTLY OR AT COLLEGE NEED TO KNOW TO PLAN FOR THEIR FUTURE. HERE ARE SOME TOPICS TO DISCUSS WITH THEM:
- You should use a credit card only if you can pay off the money owed in full
- You need health insurance and life insurance.
- Putting your eggs in one basket can be a risky way to invest; consider a diverse mix of stocks, bonds, and cash
- Always consider two factors before investing: the risks and the annual expenses
If teaching financial literacy seems overwhelming or you don’t feel qualified to serve as an example due to your own personal finances, there are many resources that can help. Money as you grow features conversation starters and activities for kids all ages. Also, the Financial Peace Junior kit is designed to help you teach your kids about money. It’s packed with tools, resources and step-by-step instructions for parents. What can be intimidating is made ultra-easy. There are ideas for activities and age-appropriate chores, and you’ll have all the tools you need to make learning about money a part of your daily life. The lessons of working, giving, saving and spending are brought to life through fun stories in the activity .
5.GIVE THEM ALLOWANCE:
Research from T. Rowe Price, an investment management company, showed that children who receive an allowance are more likely to think they have a good understanding of basic financial topics than those who don’t get one.
The important thing is to not give your kid an allowance and let him do with it what they will — you need to talk about money with your kid, as well. Discuss the importance of earning money and how to make it last. Teach your kid early that it costs money to do fun things and how saving their allowance helps them achieve certain financial goals. Like saving for a new bike or a fun outing with friends.