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Step-by-Step Guide to Financial Success for Kids

Step-by-Step Guide to Financial Success for Kids

August 22, 2023

Whether it is learning to ride a bike or money management, all life skills are way less intimidating when learned as a kid. When children grow up with healthy financial practices from an early age, they make good financial decisions as adults. Here is a comprehensive guide to tax-efficient money management strategies that can help foster financial literacy and set your child up for a lifetime of financial independence:

Age 3-4: Financial Learning Through Play

  • Introduce the concept of money with books, games, and imaginative play. Show them different coins and bills, and talk about their values.
  • Teach them the basics of delayed gratification and the difference between needs and wants.
  • Help them set up a piggy bank or other savings container.
  • Open a custodial investment account: UGMA/UTMA account for your child, which is a type of account that allows you to invest money for your child, but they will have control over the account when they reach the age of majority (typically 18 or 21). The money in a UGMA/UTMA account is taxed at the child's tax rate, which is typically lower than the adult tax rate.
  • Start saving for college: You can open a 529 college savings plan and start saving for college even before your child is born. This type of plan allows you to save money for college tax-free. The money in a 529 plan can be used to pay for tuition, fees, room and board, and other college expenses. And starting 2024, lifetime maximum of $35,000 can be rolled over to Roth IRA, if eligible.


Age 5-7: Developing Own Personalities While Learning About Money

  • Start giving small allowances, possibly tied to chores. 
  • Continue teaching your child about money.
  • Help them learn how to make a budget for small purchases.
  • Talk to them about saving for long-term goals, such as a new bike or a trip to the zoo.
  • Continue saving for college and contributing to UGMA/UTMA accounts.


Age 8-10: Growing Financial Skills

  • Increase their allowance and spending responsibilities.
  • Open a savings account for your child at a bank or credit union.
  • Talk to them about the different types of investments, such as stocks, bonds, and mutual funds.
  • Teach them how to track their investments.
  • Talk to them about the importance of saving for college.
  • Continue to help your child develop good financial habits by teaching your child about the importance of saving, budgeting, and avoiding debt. Help them set financial goals and develop a plan to achieve them.
  • Continue saving for college and contributing to UGMA/UTMA accounts.


Age 11-13: Broadening Financial Independence in the Critical Tween Years

  • Help them open a checking account.
  • You can help your child build credit by adding them as an authorized user on your credit card, even if you do not give them the physical card. (NOTE: this is beneficial as long as you keep the account balance relatively low and pay your bill on time every month. If you rack up a high balance, it could end up hurting the child's credit.)
  • Encourage stronger budgeting with periodic allowance (e.g., bi-weekly, semi-monthly) for them to manage.
  • Layer on the concept of long-term savings such as for a car or for college.
  • Continue teaching your child about investing.
  • Teach the importance of giving to others, particularly as it relates to the family values.
  • Teach them about compound interest.
  • Help them understand the importance of opportunity cost.
  • Continue saving for college and contributing to UGMA/UTMA accounts.


Age 14-18: Money Management for Teenagers

  • Allow greater autonomy but maintain shared bank viewing.
  • Peer pressure’s at its peak, so keep tabs on spending to ensure your teen stays on track, personally, academically and financially.
  • Help your child get a part-time job or start a business of their own. This will teach them the value of hard work and earning their own money. They can use their earnings to save for college or other goals.
  • If they are earning an income, open a Roth IRA for the child and contribute the maximum amount allowed each year. Help them understand sooner they start planning for their retirement, the faster they can grow their nest egg.
  • Consider extending a loan for a significant purchase. This helps your teen learn about loan repayments and the advantages of remaining debt-free.
  • Talk to them about the importance of building good credit.
  • Help them create a budget for college.
  • Help your child apply for financial aid for college. There are many resources available to help students pay for college, such as scholarships, grants, and loans. Help your child research their options and apply for the financial aid that they qualify for.
  • Continue saving for college and contributing to UGMA/UTMA accounts.


Age 18+: Banking and Budgeting for Larger Spending

  • Peer pressure is finally waning, but spending is likely increasing, in line with financial responsibilities like gas, car maintenance costs, cell phone bill, etc.
  • Continue to encourage wise wealth decisions as they will be responsible for managing their own finances. Help them set up a budget and track their spending.
  • Help them make the most of their college savings plan.
  • Help them get started in their career and avoid debt.
  • Encourage to invest wisely and help them reach their financial goals.
  • Motivate them to max out their 401(k) contributions through their employer-sponsored investment plan.
  • Continue saving for college and/or contributing to retirement accounts.

This is just a general checklist, and the specific strategies that you use will depend on your child's individual circumstances. However, by following these general guidelines, you can help set up your child for financial success in the future.

Here are some additional tips for teaching your child about money management:

  • Make it fun! There are many games and activities that can help children learn about money.
  • Be a good role model. Children learn by watching the adults in their lives. Make sure you are setting a good example by being responsible with your own money.
  • Be patient. It takes time for children to learn about money management. Don't get discouraged if they don't get it right away.
  • The earlier you start saving, the more time your money has to grow.
  • Even small amounts saved regularly can add up over time.
  • Investing wisely is important, but it is also important to be patient and not try to get rich quick.
  • There are many factors that can affect your child's financial future, so it is important to help them make wise decisions about their money throughout their lives.

It is important to remember that there are no guarantees in life, but your wealth advisors at Tortuga Wealth Management can help you develop a tax-efficient investment strategy that gives your child a better chance of achieving their financial goals.