For kids, the idea of saving money doesn’t come naturally, but there are ways to teach children from an early age how to value money so that when it comes time to save for big-ticket items—cars, college—saving is a reflex.
Lacey Manning, founder of LTG Financial in Ocala, Florida, says that when children are as young as three, you can get started with envelopes or jars to help them understand the idea of saving.
Saving for Kids: Getting in the Habit
Once kids get older and accumulate some funds, consider opening bank accounts in their names. Children's savings accounts can reinforce the concept, and is something Manning has done with her own children.
“When they get older, they can see those amounts on paper. They want that gratification, just like we do when we see our accounts. I remember when they received a statement in the mail from the community bank with their name on it, their eyes lit up,” she says.
Another idea: make savings goals part of your New Year’s resolutions, both for parents and children. “Building financial confidence has a lot to do with planning and setting goals,” Manning says.
With the holidays coming up, now is a good time to open accounts or make financial gifts to help children save for long-term goals like college, she adds.
Dara Luber, senior manager, retirement at TD Ameritrade, says family members can use several different accounts for savings. 529 plans and Coverdell accounts are popular vehicles for education-related investing; two other investing account options are the Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA) Custodial Accounts.
Luber says federal gifting laws apply to family members who want to make gifts to 529 plans, so givers can contribute up to $14,000 per individual ($28,000 if filing jointly) annually. Affluent givers can contribute up to five years of gifts at one time and write it off over the next five years, up to $70,000 per child.
“If you have money, it’s a great way to get it out of your taxable estate, and the money is available for the child when she or he goes to college,” she says.
If the child doesn’t go to college, the money can be transferred to another individual in the family, she adds.
Coverdell account contributions are limited to $2,000 per child per year, and there are limited eligibility requirements, she says.
UGMA and UTMA custodial accounts allow a minor to own securities in an account, and the money in the account benefits the minor. The funds don’t have to be used for college, but can be withdrawn for any purpose benefiting the minor. Unlike 529 plans, the donor doesn’t have control over the assets. When the child reaches the age of majority, which can be between 18 or 21 depending on the state of residence, he or she gets full access to the assets.
No matter what approach parents use to develop that child savings or investing plan, remember, kids look to their parents for guidance.
“Be a financial role model for your children. They will emulate your habits,” Manning says.
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