Recently, a friend of mine and I were comparing notes about how to best give our kids a head start with their money. He’s not just an ordinary friend, but he’s running Youth Entrepreneur Summit. That’s proof that he knows his stuff.
Since I was already thinking about the steps we’ve taken, I figured I might as well make them a blog post. I know it has been a while since I’ve written a blog post, so as a reminder, the boys are now ten and 11 years old.
Here are my seven…
Best Money Starts for Kids
(Roughly in order of importance.)
1. Education
I always tell kids that school is job 1. Get good grades, make good friends, but most importantly, just try your best. So far, so good. They each have their individual strengths and weaknesses, like all people, but they are checking off this box. I emphasize “checking” because I remind them that:
“Success is never owned. It is rented. The rent is due every day.”
I don’t have to spend any other words explaining how a good education can lead to better careers, do I?
2. Core Financial Education
I teach kids about money in several different ways: television, books, online courses, and even video games. Here’s a great list for all those resources. When it comes to books, here are my recommendations for Best Kids’ Money Books. I have quite a few sorted by age and specialty so that you can pick the best books for you.
The most important thing to do is teach kids compound interest.
3. Allowance w/Debit Card
I believe that giving an allowance is one of the best ways to teach kids about money. This is why I created a whole portal of articles about allowances.
Specifically, one of the best things I’ve ever done was set up my kids with a Famzoo debit card. You can read my Famzoo Review here. It was too difficult for me to remember to pay them every week, and I never had the right denominations of cash. This automated the process, and the kids are great at learning their cards and using the app to know how much they have.
Most parents are so confused when their kids use their debit cards. One time, a 9-year-old (at the time) took out his debit card and bought his friend a small ice cream while they were on a play date with another parent.
4. Teach them to Become Entrepreneurs
You can’t beat the old-fashioned lemonade stand to teach kids about money. They’ll value a dollar a lot more when they earn it. Learning how to run a business will help them throughout their whole lives, even if it’s not a core part of their career.
I create a portal with a bunch of articles about how to teach kids to become entrepreneurs.
5. Set Up a Brokerage Account and Invest
When my kids were really young, around 3 and 4, I opened brokerage accounts for them. By that time, they had a decent amount of birthday money from aunts and uncles. They didn’t need it to buy stuff because we spoiled them with more toys than they could ever play with.
At the time, interest rates were close to 0%. In the last seven years, they’ve doubled their money. Nowadays, they care more about spending that birthday money than investing it. Nonetheless, they now have several extra thousand dollars compounding away. It’s money they’ve never missed.
6. Credit Card Authorized Users
Around the same time that I created those brokerage accounts, I added them as authorized users to our Amazon Prime Credit Card. They have credit cards that they don’t even know about.
Why would I do this? To credit card companies, it looks like they are being responsible users of credit. That builds their credit history. Hopefully, they won’t need credit for a long time, but when they do, this simple step will come in handy. Compared to everything else on this list, it’s a quick and free head start that could pay off for years.
7. Kid Roth IRA
My kids have helped me with our home-based dog boarding business. It’s only fair that I pay them for their work. When kids earn money from a job (not from an allowance, but a real business), they can open up a Roth IRA. There are no special rules for kids. Anyone can contribute to a Roth IRA – as long as they have earned income. It’s the “earned income” that’s hard for kids because most can’t get a job until they are 15 or 16 years old. (Those pesky child labor laws!)
It may take some effort to figure out, but if you can manage it, a kid Roth IRA can be worth millions. There are two very important factors at play:
- A REALLY long time of compound interest. When you start to learn about compound interest, you’ll wish that you started earlier. It’s hard to start earlier than being a kid. Perhaps they won’t have to save for retirement at all.
- They don’t have to pay taxes on the growth of the Roth IRA. That’s very important because, normally, investment gains are taxed.
Final Thoughts
A lot of young adults are in a tough financial place nowadays. They have high student loans and health insurance premiums, and the cost of housing (renting or buying) is off the charts.
The best way to prepare them for this world is to set them up with a few of these “money starts.”
