Teaching Good Financial Habits Young
(Disclaimer: This post is sponsored by PSECU, a Pennsylvania-based credit union.)
Many parents put off initiating financial discussions with children until they become old enough to begin babysitting or performing odd jobs to earn cash. However, attitudes about money start forming in the human mind shortly after vocabulary begins to develop. The earlier parents start saving for their child, and inspiring them to do the same, the more interest to be reaped as a return on investment.
A simple piggy bank can serve as a good starting point, and little ones can literally save their pennies until they amass enough to open a savings account at a bank. As a child matures and can begin forming their own spending and savings habits, parents can share strategic thinking and planning around money.
Parents experiencing financial challenges can endeavor to empower their children not to fear economic downturns, but to use the experience as a teachable moment and encourage them to come up with creative ways to earn extra cash.
Regardless of economic situation, parents can help children learn the concept of opportunity cost by allowing them to start a separate savings account for a special desired item. Then, teach them to wait 24 hours before making the final purchase decision to help them get a handle on managing impulse spending at an early age.
Get a Jump Start on College Savings
The cost of higher education continues to soar in the U.S., and getting a jump start on saving for college while children remain in infancy allows parents to harness the power of interest to grow savings.
A 529 college savings plan allows you to accrue interest and experience a substantial tax benefit. At the federal level, parents cannot deduct 529 contributions on their 1040. However, when they eventually withdraw funds for educational purposes, the accrued interest is tax-free. Depending on where they live, parents may be able to deduct the contributions on their state tax return.
Share About Investments and Interest
Certificates of deposit (CDs) provide another savings vehicle for future college or other costs. Although CDs typically require a sizable investment, parents can deposit money in a traditional savings account until they acquire enough to buy a CD with a higher interest rate. Investing offers yet another teachable moment, especially with teens, so they learn how to make their money work for them.
Money market accounts likewise pay higher interest rates. Unlike CDs, customers need not wait to withdraw funds for a specified period. However, these accounts require high starting balances. Young people can set up savings challenges to strive to reach the point where they can meet the minimum requirements and start a money market account.
Historically, the stock market provides the highest rate of return, but it doesn’t come without risks. Involve children in discussions with financial advisors when they reach a viable age. Those unsure of investing in individual stocks can invest in a mutual fund that balances risks with rewards.
Start Early, Grow Wealth Faster
Teaching children about different investment and savings options allows them to leave the nest when they’re ready to move out on their own with a tidy chunk of change to cover everyday household expenses. Children who learn how to manage money wisely in their formative years often enjoy greater financial security for life, so start now.
Tags: bank account, college savings, investing, money market, piggy bank, PSECU, stock market, teaching children about financies, wealth management
