6 Ways to Give Your Child the Best Financial Start in Life

TL;DR

Give your child a strong financial start by building credit history, saving and investing for future expenses, teaching money skills, and accumulating travel rewards. The six approaches include adding them as an authorized user, opening a 529 plan, using a UGMA or brokerage account, teaching budgeting with real purchases, using the Investing For Kids activity book, and joining frequent flyer programs. Read on to compare how each option can help.

Transcript

if you have a little one in your life you may be wondering how can you support them financially but maybe not support them financially in the sense that you're thinking you want to give them a jump start in their lives financially so that they're not trying to figure out how to afford College how to get ahead how to get a new credit card in this vi... Read More

Key Insights

• 💳 Setting up a child as an authorized user on a credit card can help them build credit history.
• 🤗 Opening a 529 account allows for tax-free growth of funds for college or K-12 expenses.
• 🤕 UGMA accounts offer flexibility in using funds but give full control to the child at age 18.
• 🤑 Teaching financial literacy early helps children develop money management skills.

Questions & Answers

Q: What are six ways to give a child a strong financial start?

Add the child as an authorized user on a credit card, open a 529 plan, and consider a UGMA or brokerage account for investing. You can also teach budgeting and purchasing decisions, use the Investing For Kids activity book, and enroll the child in frequent flyer programs.

Q: How can adding a child as an authorized user help build their credit history?

The authorized-user account can appear as an open account on the child’s credit report, even though the child will not receive a credit score until age 18. Adding a child as young as 2 could therefore establish more than a decade of account history by adulthood.

Q: Does a young authorized user need to use the credit card?

No. Justine added her 2-and-a-half-year-old daughter, Quinn, to a Chase Sapphire Preferred Card but keeps the child’s card in a drawer rather than letting her use it. The purpose is to begin establishing account history.

Q: How does a 529 plan help pay for a child’s education?

A 529 plan lets you invest money for education and withdraw it tax-free for qualifying expenses. The funds can support college as well as K–12 costs such as tuition or a laptop computer.

Q: Can you open a 529 plan before a child is born?

Yes. The suggested process is to open a 529 plan with yourself as the beneficiary, then open another using the child’s Social Security number after birth and transfer the funds to the child’s plan. The transcript says this can also be done for stepchildren, nieces, or nephews when there is a family tie.

Q: What can happen to unused money in a 529 plan?

If the money is not used for qualified education expenses, it can be rolled over into the child’s Roth IRA. Justine also says Quinn’s 529 plan, originally opened under Kyle’s name and later transferred, has more than $7,000 for college-related expenses.

Q: What is the benefit and tradeoff of a UGMA account?

A UGMA account provides flexibility because the invested money does not have to be used for education. The tradeoff is that the child gains full ownership at age 18 and can use the funds as they choose.

Q: How can parents begin teaching financial literacy to children?

Parents can teach budgeting, explain the value of money, and involve children in purchasing decisions so they learn to spend mindfully. The Investing For Kids activity book is another resource mentioned for introducing financial and investing concepts.

Summary & Key Takeaways

• Set up your child as an authorized user on your credit card to start building their credit history from a young age.

• Open a 529 account to save for your child's college education, and now, K-12 expenses as well.

• Consider a UGMA account or brokerage account to invest money for your child's future expenses.

• Teach your child financial literacy by budgeting and involving them in purchasing decisions.

• Use resources like the "Investing For Kids" activity book to teach financial concepts to children.

• Sign your child up for frequent flyer programs to accumulate points for future travel rewards.