Do you remember when the hospital staff put that little bundle of new baby into your arms? Perhaps you met your child in an office somewhere or maybe it was a park. Regardless of how your child came into your life, I bet you promised yourself that you would make the best life you could for your child. A big part of making a good life for your child, means educating them about personal finance and setting their feet on the path to wealth. Here are six things you can do while your child is still young to help them do well.
#1 Open a savings account at a credit union
Credit unions have great customer service, lower loan rates, and are smaller than many banks. Opening an account a credit union allows the child to start developing a relationship with a financial institution and helps the child understand that money go into an account before one can swipe a card. Many credit unions also make an effort to reach out to youth, so they may offer incentives to open an account and yearly incentives to contribute more during Financial Literacy Month (April).
#2 Buy individual stocks for birthdays holidays
There are multiple sites where adults can buy individual stocks, complete with attractive stock certificates, for children. If the child is old enough, have them help by thinking about what products they use every day and why certain stocks might be a better investment than others. Place the stock certificates where they can view them often and bring it up in conversation.
#3 Encourage friends and family to contribute to a 529 plan
Most friends and family love to purchase new clothes or new toys for children. While any gift is certainly appreciated, a gift of $10 that could triple its value is much more helpful. Most 529 plans have a way for friends and family to put a few dollars in for milestones.
#4 Let the kid grocery shop with a spending plan and coupons
Kids see adults buying things all the time, but rarely do they understand why we choose one item over another. Including the child in grocery shopping helps the child to understand value over cost, that things do cost money, money is not infinite, and how money moves from a checking account to a vendor (through cash, check, debit card or credit card).
#5 Set limits at amusement parks
When you arrive at an amusement park, hand each child a specific amount and tell them that once they spend it, there will be no more money. As they spend, try to guide them by explaining the rationale behind each choice but do not force them to spend the way you want. If they run out of money and become upset, it’s a tough lesson to learn but would you rather have them learn this lesson at nine years old or twenty-nine year old?
#6 Sock the college fund in a Roth IRA
Investing for your child’s college education is good, but depending on where you put the money, the funds could count against the child with the financial aid office. A Roth IRA is a great place to park the money because it’s counted differently than other college investment plans, you can take out the principle with no fees whenever you want, and if there is money left over, that money can grow tax deferred until retirement. Talk with your fee-only financial advisor about this option.
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Shay Olivarria is the most dynamic financial education speaker working today. She speaks at high schools, colleges, and companies across the country. She has written three books on personal finance, including Amazon Best Seller “Money Matters: The Get It Done in 1 Minute Workbook”. Shay has been quoted on Bankrate.com, FoxBusiness.com, NBC Latino and The Credit Union Times, among others. To schedule Shay to speak at your event visit www.BiggerThanYourBlock.com.
Do you know how your financial advisor gets paid? Money is a huge motivation for most people that hold jobs. There are generally three types of financial advisors in the US: percentage based, transaction based, and fee only. If you don’t you may want to find out, it may be costing you thousands of dollars a year.
Percentage based means that the advisor works on maintaining, and hopefully growing, your wealth. They get paid by taking a cut of your overall wealth every year. The idea is that if you’re worth more they make more. If you’re worth less, they make less. This encourages them to grow your wealth because their commission is tied to your financial health. The issue here is that in an effort to increase your wealth, there may be a motivation to make moves that are more risky that you’re comfortable with. After all, if they lose some of your money they have other clients they earn commissions from. Where will you make up the difference?
I’m using the term transaction based as a catch-all term that includes advisors that get paid as brokers (when you make transactions) and as advisors (suggesting funds to you). Basically, these people get paid when you buy something. It benefits them to encourage you to make many different transactions because the more you buy, the more they make. Let’s say that Mutual Fund A is a good fit for you, but only offers the transaction based advisor $100 worth of potential commission while Mutual Fund B is more risk than you want to take on, but offers the transaction based advisor $200 worth of potential commission. I’m sure that we can all see the temptation there.
Fee-only advisors require a set amount of money for a specific action, say creating a wealth strategy, a debt management strategy, an investment portfolio, etc. Since the fee-only advisor is already getting paid for her knowledge, there is little -to-know motivation to suggest funds that will give them a commission but may not be right for you, encourage you to trade more than is necessary, or make risky trades on your behalf to try and increase your wealth.
Finding out how your financial advisor gets paid may end up saving you thousands of dollars. It’s important that you have a solid relationship with your financial advisor. If you don’t know, ask. If you feel worried about asking… you may need to find a different financial advisor, but make sure she’s a fee-only advisor.