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3 Strategies to Teach Your Child to Invest

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3 Strategies to Teach Your Child to Invest

Chicago, Ill.-based actor Mike Wollner says at ages 7 and 10 his daughters are already learning how to invest.

Three years ago, Wollner opened custodial brokerage accounts for the girls through Monetta Mutual Funds, which has a Young Investor Fund specifically for young people to invest for the future. Through the fund, parents can open custodial brokerage accounts or 529 college savings accounts on behalf of their children, as well as get access to financial education and a tuition rewards program.

Wollner decided to open the accounts once his daughters began to nab acting gigs and earn an income. They’re already beginning to understand what it means to own a part of the world’s largest companies. “They will ask me to drive past Wendy’s to go to McDonald’s and say, ‘well, we own part of McDonald’s,’” he says.

Wollner hopes his daughters will have saved enough for college by the time they graduate high school. His 10-year-old’s account balance already hovers around $13,000, while his 7-year-old has a little less than $10,000 saved for college in her account.

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The contents of the package a child receives in the mail when an adult opens a Monetta Mutual Young Investor Fund custodial account on their behalf.

The Value of Starting Young

The Monetta Fund is only one example of a way to invest on a child’s behalf. The downside to using an actively managed investment account like the one Monetta offers is that it comes with higher fees — the fund’s expense ratio of 1.18% in 2016 is higher than the 0.10% – 0.70% fees typically charged by state-administered 529 college savings plans.

In addition to 529 plans, parents can open Coverdell Education Savings Accounts, or other custodial brokerage or IRA accounts through most financial institutions like Fidelity, Vanguard, or TD Ameritrade.

A college fund serves as a great way to teach kids a little about the time-value of money, but they’ll need to know more than that to manage their finances as well as adults.

“There’s no guarantee that they are going to be financially successful because anything can happen in life, but you’ll be better off with those skills and have a better chance of being successful with those skills than without them,” says Frank Park, founder of Future Investor Clubs of America. The organization operates a financial education program for kids and teens as young as 8 years old about financial management and investing.

He says FICA begins teaching financial concepts at an early age with hopes that the kids who start out with good money management habits now will continue to build on them as they age.

“If they fail to get that type of training now, it may be years into their late 20s, 30s, or 40s before they start. By then it could be too late. It could take 20 years to undo the mistakes they’ve made,” says Park.

3 Ways to Teach Young Kids About Money

Use real-world experiences

Wollner has each daughter cash and physically count out each check they receive from acting gigs.

“They just see a big stack of green bills, but that to a child is cool. It’s like what they see in a suitcase in the movies,” says Wollner.

He then uses the opportunity to teach how taxes work as he has his daughters set aside part of the stack of cash to pay taxes, union fees, and their agent.

“They start to see their big old pile of money diminish and get smaller and smaller,” says Wollner, who says the practice teaches his daughters “everything you make isn’t all yours, and I truly believe that that’s a lesson not many in our society learn.”

Kids don’t need to earn their own money to start learning. Simply getting a child involved with the household’s budgeting process or taking the opportunity to teach how to save with deals when shopping helps teach foundational money management skills.

Park urges parents to also share financial failures and struggles in addition to successes.

“They need to prepare their kids for the ups and downs of financial life so that they don’t panic if they lose their job, have an accident, or [their] identity [is] stolen,” says Park.

Gamify investing

Gamified learning through apps or online games can be a fun way to spark or keep younger kids’ interest in a “boring” topic like investing.

There are a number of free resources for games online like those offered through Monetta, Education.com, or the federal government that aim to teach kids about different financial concepts.
Wollner says his youngest daughter benefited from playing a coin game online. He says the 7-year-old is ahead of her peers in fractions and learning about the monetary values of dollars and coins.

“This is how the kids learn. It’s the fun of doing it. They don’t think of it as learning about money, they think of it as a game,” says Bob Monetta, founder of Monetta Mutual Fund. The games Monetta has developed on its website are often used in classrooms.

When kids get a little older and can understand more complicated financial concepts, they can try out a virtual stock market game available for free online such as the SIFMA Foundation’s stock market game, the Knowledge@Wharton High School’s annual investment competition, or MarketWatch’s stock market game.

“The prospect of winning is what makes them leave the classroom still talking about their portfolios and their games,” says Melanie Mortimer, president of the SIFMA Foundation.

Anyone can play the simulation games, including full classrooms of students.

Aaron Greberman teaches personal finance and International Baccalaureate-level business management at Bodine High School for International Affairs in Philadelphia Penn. He says he uses Knowledge@Wharton High School’s annual investment competition in addition to online games like VISA’s websites, financialsoccer.com, and practicalmoneyskills.com, to help teach his high school students financial concepts.

Adults should play the games with children so that they can help when they struggle with a concept or have questions. Adults might even learn something about money in the process. Consider also leveraging mobile apps like Savings Spree and Unleash the Loot to gamify financial learning on the go.

Reinforce with clubs or programs

For more formal reinforcement, try signing kids up for a club or other financial education program targeting kids and teens.

FICA, the Future Investors Clubs of America, provides educational materials and other support to a network of clubs, chapters, and centers sponsored by schools, parents, and other groups across the nation.

When looking at financial education programs, it’s important to recognize all programs are not equal, says FICA founder, Frank Park.

“Generally speaking, you’re going to go with the company that has a good reputation of providing these services, especially if your kid is considering going into business in the future,” says Park.

The National Financial Educators Council says a financial literacy youth program should cover the key lessons on budgeting, credit and debt, savings, financial psychology, skill development, income, risk management, investing, and long-term planning.

Mortimer suggests parents also try getting involved at the child’s school by offering to start or sponsor an after-school investing club. She says many after-school youth financial education or investing organizations nationwide use SIFMA’s stock market simulation to place virtual trades and compete against other teams.

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Pay Down My Debt

Avoid Debt by Not Having Children

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The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Kali_lg

By Kali Hawlk, CommonSenseMillennial.com

Every time someone asks, “so when are you having kids?” I have two reactions. First, I cringe. Second, I feel grateful that I’m a woman living in 2014 where having children feels more like an actual choice than it ever has before.

I’m one of those millennial women who has zero interest in adding children to my family. My husband and I are happy, fulfilled, and satisfied with life in a household that consists of the two of us and some four-legged family members. We don’t feel like anything is missing. Our family is perfect to us.

The Choice to Not Have Children

To those with children, or to those who one day want them, my general response to kids (“no thank you”) often comes across as hostile or aggressive toward their way of life. That’s not my intention in declining to participate, and I feel like this is important to try to explain.

Having children is simply not an experience that appeals to me in any capacity. There has never been a time in my life when I’ve thought, “maybe I’ll give that a try someday.” A mother is not a state of being I’ve ever identified with. That doesn’t mean I spend time questioning the choices of those who do identify with motherhood and are happy to acquire the title of parent.

Far from feeling negatively about children, I just don’t feel anything at all. I don’t spend time thinking about the issue one way or the other (until someone presses me about it and then makes assumptions about me, my relationship, and my quality of life based on my answers). And I don’t hate kids. I like or dislike children on the same basis I like or dislike adults: their individual personalities.

The only thing I hate is that to have or not have kids is even a debate. You either want them or you don’t, and the only opinion you should get worked up about is your own. Having children is an intensely personal decision, and it is not a choice that should be judged by others either way.

Now that we’ve clarified that I’m not some sort of kid-hating jerk who thinks everyone with kids is somehow wrong, let’s move on to the more controversial points of the post.

The Financial Issues with Having Children

Because I feel completely unemotional about the idea of having children, the only issue that captures my attention is the practical matters involved. However you may feel about kids and having them for yourself, no one can deny the financial facts: kids don’t come cheap.

The US Department of Agriculture recently released research that indicated raising a child to the age of 18 would cost the average American middle class family $245,000. That’s a quarter of a million dollars just to get a child to the legal start of adulthood; the figure doesn’t even touch higher education costs. And that’s the average, meaning many families are paying far more.

When I ran my own information to calculate the average cost of my family having kids, I nearly fell out of my chair. This calculator from Baby Center says I’ll spend a whopping $319,422 to raise a kid to the age of 18 and pay for that kid’s public college education.

This number is particularly painful to me as it is far, far more than the total gross income I’ve made since I graduated college at 21 and entered the full-time workforce. (I’m approaching my 25th birthday now, and if you feel that’s young for having kids, keep in mind I live in the South and know many people younger than I am with multiple children.)

Combine this financial responsibility with all of the other financial goals Gen Y is working towards, and something becomes immediately, painfully obvious: if you want to avoid debt and save more, skip the kids.

The Cost of Children Makes It Difficult for Average Families to Achieve Financial Success

The average American household’s median income is about $51,000 per year, pre-tax. Even assuming that was post tax, the average yearly cost of raising a child, about $13,000, takes up a quarter of annual income.

That doesn’t leave much room for achieving a number of financial goals that you must hit in order to achieve financial security and independence. It’s difficult to gather up enough money for a down payment on a home, build an emergency fund with three to six months’ worth of expenses at a minimum, contribute a little something to your retirement down the road — all after accounting for the cost of kids.

Note that I said difficult, and not impossible. Many families do manage it — but many more simply can’t because of the financial burden associated with children. It may be enough of a struggle to make it from paycheck to paycheck, let alone add cash to different savings buckets and investments for the future.

[Be sure your savings account is earning more than 0.01% in interest. Compare rates here.]

Without the financial drain of children, my husband and I were able to purchase a home, build up an emergency fund, create a separate savings fund for international travel (what we personally prioritize and find necessary for a fulfilling life), and invest nearly half of our income so we can achieve our financial goal of retiring early to pursue our passions full-time. Adding kids to the mix would have made our version of financial success impossible.

We were able to do all of the above on a comfortable yet firmly lower-middle-class income; we’re above the average of $51,000 but below six figures. We would have not only struggled to get on track for our financial goals, but would’ve flat-out struggled financially.

Just adding one kid-related expense would start straining the cash we have available in our current budget for discretionary spending (which does not include cash available for bills and savings). Daycare for one child in our area is more than the mortgage payment on our home. Adding more costs would mean slashing the amount we could put into savings, and the total cost of kids per month and year would drive us awfully close to not being able to save or invest anything at all.

Should just one thing go wrong, our previously debt-free lives would be completely disrupted. Without money going to savings to handle financial emergencies, we’d be pushed into debt and hard pressed to find a way to dig ourselves out.

Financial Losses Are More Than Just Expenses

Adding children to the mix in my personal situation would also hinder my ability to earn an income and financially contribute to my family. Although I know women who do an amazing job of working stressful jobs from home while caring for multiple children — and am endlessly impressed by their ability to do so — I wouldn’t be able to do the same.

My business is extremely important to me, and I value the freedom and energy I currently have to devote to growing and expanding it. I couldn’t even get passed a pregnancy without losing income: as someone who’s self-employed, I don’t receive employer benefits to cover a stretch of leave. If I don’t work, I don’t get paid.

Many other women are in the same camp as I am, and either unable or unwilling to give up their ability to earn money. Complicating the situation is the fact that the United States is one of the worst countries in the world for providing paid family leave. In fact, we rank right at the bottom of the list with countries like Liberia, Suriname, and Papua New Guinea.

Many companies aren’t obligated to provide paid maternity leave (much less paternity leave), which leaves many working women no choice but to go without an income in the weeks they must spend recovering and caring for a newborn.

Moms are still at an earning disadvantage even after those initial weeks and months. As Erin Lowry explains in a piece for AOL’s Daily Finance, “on the financial side, non-moms have the advantage” because they’re more likely to earn more than women with children. There shouldn’t be a debate around whether that’s fair; it’s obviously not. But it’s another financial strike against choosing to have children, especially when women already struggle to secure equal pay for equal work.

So in counting the financial downsides to children, we must consider not only the expenses but also the opportunity costs to women who value their ability to work and earn income.

Avoid Debt by Not Having Children

I have plenty of personal reasons for not being interested in having children. My husband and I are on the same page, and our goals and our plans just don’t account for kids.

I’m glad this is not a financial issue I need to account for. Without children, we’re financially successful and ahead of most of our peers. We’re on track to achieve all our biggest financial goals — and many of them, like financial independence, in less than 10 years.

Add kids to the mix, and things start going financially bad awfully quick. We’d go from saving and investing the majority of our income to living paycheck to paycheck hoping we never experience an unexpected financial need at best and struggling with growing piles of debt at worst.

Dealing with debt? Consider a personal loan or a balance transfer to slash interest rates.

The ugly financial picture isn’t the only reason we don’t want kids and won’t have them. But it’s a reality that other millennials need to think about and plan carefully for if they do want children. There’s never a “right” time for kids and I’ve been told by grouchy parents that advising others make sure the financial stars are in alignment before reproducing is not realistic.

But, if kids are a part of the long-term plan for you, I still believe it’s worth your time and effort to give the financial issues some thought. If you can’t take care of yourself financially, you aren’t prepared to adequately provide what a child deserves. Ensure you can meet your own basic needs first, then have an emergency fund and at least a little bit invested in retirement accounts for your future before taking on the financial responsibilities associated with having kids.

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