Money Moves to Make For Your Kids

“Wu-Tang is for the children.”
Ol’ Dirty Bastard

Teach them the Golden Rule: C.R.E.A.M.

Slightly less cool, but still for the children, is financial literacy. There’s no minimum age to instill the values of money, personal finance and financial literacy in your little ones. As Wu taught us, cash rules everything around us. They even launched their own finance group. Kids have to be comfortable with money coming in and money going out. Approach this with a method, man and woman, as you might with your own finances.

Ways to grow your kid’s financial literacy

I really enjoy this advice on talking to your kids about money from DaveRamsey.com (he’s a veritable shaolin samurai of finance). He lays out a number of tips that I enjoy, like start slow, be honest, and talk value, not figures.

Also, check out our Resources page for more stuff to share with your kiddo. The Mindful Spending worksheet could be a great place to start.

There are a number of personal finance steps to take from the time before your kid is even born until they’re 18. That’s not the cut off for learning about finance, but they can legally do what they want with their money at that point. Which is why it’s so important for them to learn finance early! I believe that doing is the best form of teaching (in almost every case) so these tangible things can help your kids in their own personal finance journey.

Who knows, they could grow up to be a renown inspectah, chef or a genius with these skills.

Open a 529 account | Age: 0 years and up

The 529 college savings plan originated in Michigan in the ‘80s before the federal government included the tax-advantaged investment vehicle as part of the Small Business Jobs Protection Act in ‘96. A critical part of your personal finance planning, a 529 plan is designed to encourage saving for the future higher education expenses of a designated beneficiary. The 529 plans are named after section 529 of the Internal Revenue Code 26 U.S.C. § 529. The gist is that a 529 plan grows tax-free – it is tax-deferred – and withdrawals from the 529 plan are not taxed when the money is used for qualified educational expenses.

What are the qualified educational expenses? Some of the ways to use 529 funds:

K-12 and college tuition and fees
Books and supplies
Room and Board
Computers and software

Almost every U.S. state has their own 529 plan (or multiple plans). State residents can open an account online for free. A financial advisor isn’t necessary. Accounts require a selected beneficiary, which can be rolled over to another beneficiary, if necessary. Account holders may contribute up to $15,000 per year as part of the annual gift tax exclusion.

Set up a Custodial account | Age: 0 years and up

Similar to a 529, a Custodial account (aka. UTMA (Uniform Transfer to Minors Act) or UGMA (Uniform Gifts to Minors Act). The Custodial account allows parents to invest for future expenses, like college. The account remains in the parent’s control until their kid reaches the age to access funds (depends on state). Check out EarlyBird, an app that has simplified the Custodial account set-up process and sums up the benefit nicely here: “[allows] family and friends to remain connected to the children they love by gifting meaningful and sustainable financial contributions for all life’s milestones.” In turn, this teaches kids about others investing in their success. It is another step in their financial literacy journey. The returns the giver might expect could be earning good grades, making the dean’s list or making a significant impact on the world around them.

	Custodial	529
Financial Aid Implications	Custodial accounts are reported as a child’s asset, reducing aid eligibility by 20% of the asset value.	529 plans are usually reported as a parental asset, they reduce aid by up to 5.64% of the asset value.
Tax Implications	The first $1,100 in unearned income from the account (like a dividend) is tax-free. The next $1,100 is taxed at the child’s income tax rate. All unearned income greater than $2,200 is taxable at the parent’s tax rate. Custodial accounts are non-deductible.	529 plans grow federal tax-free. Up to $10,000 can be taken out tax-free to pay for college. Some states offer a full or partial tax deduction or credit for 529 plan contributions.
Contributions	Contribute more than just cash, like stock holdings, real estate or even artwork. Max $15,000 per year or $30,000 per married couple to avoid a gift tax.	Contributions limited to cash only. Max $15,000 per year per person to avoid a gift tax.
Fund Use	Parents can decide how the funds will be spent and they are not limited to educational purposes. If your child decides not to attend school, they can access the money for other predetermined purposes.	Must be used for educational expenses, like tuition, or room and board.
Flexibility	The Custodial (UGMA, UTMA) account may not be passed along to other children in the family.	The 529 account can be passed along to other children in the family. So, if one child earns a scholarship and doesn’t need everything in the 529 account, then you can roll it to another beneficiary.
Ownership	When kids reach the age of majority, they gain control and can spend the money however they like.	The creator of the account keeps control regardless of the beneficiary’s age

Go to SavingForCollege.com for more on the benefits and drawbacks of a Custodial account vs. 529 plan

Open a Savings Account | Age: 8 years or when they start getting paid for chores

Kids can start doing chores around the house as early as 2 years old. They put away toys or mop small areas in the kitchen. But, let’s not kid ourselves – they don’t need (or even should IMO) get paid for chores until they’re doing something of value and really earning that dollar. Some jobs are paid more than others. That’s an important lesson to instill! Clean up your room = $1; take out the garbage = $3. However you want to structure, but let them know that with sweat and effort comes more cash.

I believe it’s wise to open a savings account first. This instills in kids the long-term value of compounding interest. Put your money away and forego economic benefit now in order to earn more later at a compounding rate of return. The personal finance basics truly apply. Also – what are they spending money on at 8 years old? Let them borrow your bucks to get an ice cream or buy more Robux, and let their $20 bucks accrue. You could also put that money they’ve earned into a money market fund.

Open a Money Market Account | Age: 12 – 14 years

Once kids are earning money they can spend on their own, they still need to build their financial literacy and maintain the wisdom to save for future plans. They could keep the money in their savings account or they can graduate to a money market account. This is a type of savings account that can provide a higher rate of return, but typically require higher deposits and balances than a savings account. At this point, they may have passed the threshold to meet the requirements. In that case – great! Transfer from the savings to the money market account and watch the money grow. Nerdwallet posted a review of money market accounts here.

Open a Checking Account | Age: 12 – 14 years

When your kids start getting paid for bigger chores or a job. According to the U.S. Department of Labor, the minimum employment age is 14 for many jobs, though federal law also restricts the number of hours that a 14 or 15 year old can work each week. Many teens will rely on Venmo or other digital wallets for their transactions. However, Venmo and others have a set 18 year age limit. Also, working pre-teens and teens will likely need a designated checking account at a bank or credit union in order to receive their direct deposit or deposit their physical check. The checking account provides an opportunity for kids to feel comfortable working with banks and even stepping foot in a bank. Again, another opportunity to expand their financial literacy.

A checking account does not improve credit and most do not provide the perks expected from credit card companies. Why? Banks don’t need to spend marketing money to get you to open a checking account with their neighborhood bank (old rule of real estate: location, location, location). Most don’t charge APRs or fees so they would achieve zero ROI. Some banks do offer cash back and cash for opening a checking account with a minimum initial deposit amount.

Most people open their checking account and savings account within the same bank. It’s easier and you likely won’t find a better deal for one vs. the other up the street. The easy move is to open an account for your kid at the same institution where you hold a checking account and, likely, a savings account. An important question to ponder is whether to open a checking account with a bank, such as Chase or Bank of America, or with a credit union, like Mountain America or Navy Federal. There are differences to consider before deciding on where to open a checking account for your kid; at a traditional bank or a credit union?

	TRADITIONAL BANK	CREDIT UNION
Designation	Customer	Member
Fees	High	Low
Products	Checking, savings, credit cards, retirement funds, loans	Checking, savings, credit cards, loans
Ownership	For-profit, owned by investors	Not-for-profit, owned by the members
Technology	Higher end, proprietary	Basic digital functions
Minimums	Minimums can range from $5 up to $500 per account, monthly service fees vary, although many banks are now removing these fees	No minimum balance, no monthly service charges

Get a Credit Card | Age 18

Helping your kid to sign up for their first credit card could teach them more about financial literacy, while building their credit early. Most credit card companies will allow kids at least 18 years or older to open a credit card as long as they can show an income.

Teens can get a secured card or an unsecured card.

Secured credit cards require a deposit, which covers the issuer if the cardholder defaults. Most importantly, they’ll help your kid build credit to graduate to an unsecured card.
Unsecured credit cards are the most common type of card. It doesn’t require a deposit and is open to most anyone with a credit score. Most people look for cards with $0 annual fees. But, kids usually have low credit scores due to lack of time to build credit and will likely have to pay an annual fee. Unsecured cards typically come with benefits, like miles and points. Secured cards do not – and neither do debit cards!

Some of the benefits of your kid using a credit card over a debit card:

Establishing credit for future needs, like a car loan
Card security – if they lose their credit card or it is stolen, you’ll pay no more than $50 if the card is stolen for an impromptu shopping spree
Added benefits for unsecured cards, like points, miles or donations to a charity

More well-known companies offer highly rated unsecured credit cards for building credit (per NerdWallet):

Lesser known companies offer highly rated secured credit cards for building credit (per Credit Karma):

If you choose not to give your kid his/her own credit card, you could add them as an authorized user on your credit card. From Lindsay Konsko at Nerdwallet: “Authorized user status allows your child to benefit from your good credit history. It won’t have the same credit-building power as being the primary user on an account, but it’s a start.” Nerdwallet talks more about building kid’s credit here.

As with any card, you and your kid should look at the APR and spending limit. You can also make sure you set time on their calendar for them to auto pay. This is a practice to build credit and pay bills. Not to spend frivolously to the limit. It’s another exercise in gaining that all important financial literacy.

Create a Digital Wallet | Age 18

The most reputable, trustworthy and popular digital wallets are PayPal and Venmo, the latter of which is owned by PayPal. Both are restricted to users 18 years and older. This is a convenient way for parents to send money to their kid with speed and security whether they’re in another room or another country. Kids or parents connect a checking account to a digital account like PayPal or Venmo. A digital wallet will help kids who are in the age of majority to make their own decisions about how to spend money or receive money. Plus, it’s how everyone is conducting business today.

More money Facts for Fathers, Partners and Kids

T. Rowe Price Parents, Kids and Money Survey (2021)