TEMPLE, Texas — By the age of three, your kids can grasp basic money concepts. By seven, many of their money habits are already set. That doesn't mean you throw in the towel after first grade.
I recommend starting money lessons by using examples from everyday life. But you need to make it age appropriate when paying bills or balancing your checkbook, get your kids involved and answer some questions.
"Setting up a checking or savings account is a great way to teach children how to balance a checkbook and the importance of saving for a rainy day," Certified Financial Planner Neil Vannoy said.
Parents should also explain to children why you are saving money, what the goal is, and where you are investing.
"If you're saving for your child's college education, why not turn it into a learning experience? Children that understand bank accounts can relate to 529 college savings plans as a savings account with a specific goal, and you can bring teenagers in on the investment selection process," Vannoy said.
Vannoy also had a great idea when investing for your children. All of those extra years in a Roth IRA could mean huge profits after decades of compounding interest.
"Children that have earned income can open a Roth IRA. This is a great way for kids to learn about investing and will give them a head start on saving for retirement. You could actually be the one making the contributions since the money contributed doesn't have to come from their paychecks, but remember that the maximum contribution for someone under age 50 is the lesser of $6,000 or 100% of earned income. Whatever is less," Vannoy said.
And even if the children don't understand everything, you can continue to teach them about investing until it's time for them to take full control, and that will really give them a head start as they reach adulthood.
"If you want to gift money to your child, but don't want to dedicate it toward a specific goal, a UTMA Custodial Account is a great option. These accounts are available at most financial institutions and allow the custodian, which is usually a parent, to maintain control of the assets until the child turns the age of majority, which is 21 for UTMA accounts in Texas," Vannoy said.
And remember, parents of children that aren't old enough to have individual accounts can open an account under their name and let their children treat it as if it were their own account. That way, you the parent, will have full control, but they will learn by trial and error.