When I was a teenager, my mom handed me two battered blue passport-sized books with details of my managed investment account. I don’t know what to do with them, but that’s okay because the account is empty anyway. Maybe for the best, since I’m almost certain my assets won’t stand a chance.
I am now a mother opening an escrow account for my 4 year old son and often wonder how I can prepare him to take control of his future investments. If you’re looking for ways to prepare your kids for investing, seasoned parents and financial experts have some ideas.
Share money value early
Cristina Livadary, a certified financial planner in Marina Del Rey, Calif., and co-founder of Mana Financial Life Design, says it’s important to prepare early when it comes to teaching kids money. No matter how old your child is, you can start by talking openly about finances and sharing your values about money.
One of the things I started doing with my son was teaching him the value of giving and encouraging him to give toys away before buying new ones. One way Livadary suggests teaching money values is to assign what she calls a “job description” to every dollar you give your child.
“One of my favorite things is taking the dollars and really separating them in a way that really aligns with the values,” Livadary said. “So, let’s say you get $3 a week — $1 to donate, another to save, and another to spend.”
Teaching Fundamentals of Investing
A custodial brokerage account is an investment account opened by a parent or guardian for a minor until he or she reaches adulthood.
If your child has a job with taxable income, you can also help them open a Managed IRA or Roth IRA.
One of the benefits of an escrow account is that while kids don’t have control over the account until they reach adulthood, you can show them what’s going on.
Michael Costello, a retired consumer goods executive in Miami and a parent of three, says he prepares his children now growing up to manage their children by teaching them about budgeting and saving. Managed Account. He also lets them view their investment accounts and watch them grow, and facilitates investment discussions with them.
“We ended up having a lot of conversations about why you should hold for the long haul? What should you be looking at? What are ETFs versus common stocks? What does bonds do?” he said.
Teaching his kids about exchange-traded funds and other assets gave him confidence that they would have access to escrow accounts at 18.
There are many ways to teach your child the power of investing. Helping them understand what compounding interest can do on every dollar they invest can motivate them to make long-term investments. If you think they are ready to start trading, some brokers offer teen accounts that allow teens to start investing under parental supervision.
Set goals and teach delayed gratification
Delayed gratification is an important adaptive skill parents can teach their children about managing escrow accounts, says Anna N’Jie-Konte, CFP and founder of Dare to Dream Planning in New York City.
Because custodial accounts are brokerage accounts that can be used anytime, it’s important for children to view their investments as long-term funds that can buy them flexibility and options in the future, she said. This can help them avoid spending money now.
“I think one of the superpowers of people who are really successful financially and who are just successful is when they have the ability to say, ‘I realize I want this right now, but it would be much better if I waited. I’m sticking with it,'” she said.
But for delayed gratification to work, it’s important to have financial goals and plans that I didn’t have as a teenager, and why I don’t think investing in my escrow account will last long. For the record, my financial plan is to become a wealthy actress and to fund all of my life’s expenses.
When setting financial goals with your child, you can set both long-term and short-term goals. Why? Some people just aren’t inspired by financial goals too far into the future, Livadary said.
“Sometimes it’s buying a house in the next three years, but sometimes it’s taking a vacation … that’s okay. It’s their version of being excited about life,” she said.
believe in the process
Costello says it’s okay for your kids to make money mistakes — they can be teachable moments.
“You can’t stand by and pet them, you have to give them control, they have to make some mistakes and then over time they figure out how to manage their money better.”
If despite being prepared, you feel that your children are not ready to manage their assets, another option is to transfer some of their assets into a trust where you can maintain control into adulthood.
This column was provided to The Associated Press by personal finance website NerdWallet. The content is for educational and informational purposes and does not constitute investment advice. Elizabeth Ayoola is a writer for NerdWallet. Email: [email protected]
NerdWallet: What is an escrow account? UGMA, UTMA, etc. https://bit.ly/nerdwallet-what-is-a-custodial-account
Copyright 2022 The Associated Press. all rights reserved. This material may not be published, broadcast, rewritten or redistributed without permission.