Despite what you may not have done right for your own children when it came to saving money, as a grandparent you want to make changes that will make your grandchildren’s future brighter, especially when it comes to the financial aspects. Teaching financial responsibility is a must for parents and grandparents alike, and children benefit greatly from the things they learn from both.
A great way to start is the good old bank — it is satisfying for the child and fun especially with all the coin banks you can now purchase. Every time you find a coin or someone gives you one, put it in that piggy bank. Then head to the piggy bank when it is full. You used to head to the savings account you opened for them as a child, one that decades ago had earned interest on their funds, not so much any more. However, other options are available and can be found at your local bank or credit union.
Obviously how to save money is the first thing to teach your child or grandchild. Whatever method you wish to use and works, is great, whether you reward them for chores with an “allowance” around the house or bring them to the supermarket and explain the difference between the $7 shampoo and the $35 shampoo. Do I need that expensive shampoo, or will the $7 one suffice? Are there sales or maybe coupons I can use? All these decisions teach your children to be better thinkers and spenders.
Have your children set their sights on a goal. Who does not want that brand new building block set or Barbie doll? Talk to your children and let them know that if they are saving for something that it may take longer than a day, a week or a month. Let’s dash the immediate gratification getting to be all too common, and teach children to work for what they want not to have it handed to them. Have them set up a way to create excitement and a passion to achieve their goal with a list, picture or a chart.
Children love to play games. In our family we turned to Monopoly and Life, but also an eBay auction game and Pay Day were big hits and learning to spend was part of the game. When your children play money-oriented games, try to assimilate their choices with real life ones as well. Children catch on very quickly when you take the time to teach them.
As they grow into teenagers, do not assume they know what to do with their money. Point them in directions that will earn interest on their saved money. Talk with them often and see what it is they plan to do with their money as they grow older. Before a trip to the mall depletes them of their hard-earned savings, explain to them the consequences of such. Remind them that college is not far off and can be very costly, but well worth the effort.
Practice what you preach and, whether or not there is a best way to save money for the future of your children, the following are some plans that may pave the road to a smoother future for your child or grandchild. Some choices are:
A Roth IRA is tax free, has very broad investment options and up to $5,500 a year can be contributed. A penalty will be incurred to withdraw for nonqualified reasons.
A Coverdell, similar to the Roth, is also tax-free, you can contribute up to $2,000 a year with broad investment options. There is also a penalty to withdraw for non-education related expenses.
There are 529 plans that have tax advantages of being a state tax deduction, are tax free, and have an unlimited amount of contributions limits but limited investment options. There is also a penalty to withdraw for non-education related expenses.
The Uniform Gift to Minors Act (UGMA) and the Uniform Transfer to Minors Act (UTMA) has tax advantage distributions, unlimited contribution limits and investment options and no penalty to withdraw funds.
Talk to your local financial planner if you have more in depth questions on how to invest in your children’s future.