Financial education starts early in life. Young people who develop good financial habits early in life are much more likely to keep those habits all their lives. If you have young people in your life and under your roof, you have a golden opportunity to change their financial lives for the future. Here are a few simple steps you can take to build a better future for them.
Fund (or Contribute To) a Roth IRA
If your child or grandchild is working an after-school job or has another source of employment, opening a Roth IRA is one of the biggest gifts you can give them. The opportunity to enjoy tax-free growth and tax-free withdrawals in retirement is compelling at any age, but a Roth IRA is an even better deal for young people.
Opening a Roth IRA now can set up your child or grandchild for success in several different ways. For one thing, just putting that money away and letting it grow for four or five decades could provide a hefty nest egg for retirement, even if no additional funds are ever added. Beyond this, opening a Roth IRA now can encourage the young person in your life to save and invest for a lifetime. Once that account is open, the hard work is done, and adding additional funds is pretty simple. And the more money they put in, the faster the funds can grow.
You can choose to fund the entire Roth IRA contribution, paying attention to the current limits and the amount of money the young person earned for the year. Or you can simply match their contributions, encouraging them to save and invest on their own.
Build Credit (with Training Wheels)
Having a good credit score may not be top of mind now, but a solid credit profile will become more important when your child or grandchild graduates and heads off to college or the working world. If you want to give the young person in your life a head start on building credit, consider adding them as an authorized user on one of your credit cards.
You will obviously need to keep a close eye on the account and be ready to shut down access in the event of a spending spree. Even so, becoming an authorized user on an established account can be a good training course in the responsible use of credit cards. Teach your child about the importance of paying high interest credit cards first and using as little credit as possible. They should try to keep their credit utilization rates low (amount of available credit actually used). General practice is to use no more than 30% of your available credit.
Teach Your Young Worker About 401k’s
Your child’s early 401K funding could easily make them a millionaire, if they start young. As soon as your child gets their first full-time job, make sure they are contributing to their employer’s 401K program (if they match them). By making small, regular investments starting in their 20’s and 30’s, their savings will grow tax-free over 30 or 40 years. 401(k) plans depend on their asset allocation to grow. Educate yourself and your child on the subject. Just a few hours of education can increase their lifetime earnings significantly.
Set Up A Bank Account For Them And Teach Them How To Manage It
Once your child starts making money, they will need a bank account to deposit their money. Take them to the bank and help them set up a savings account. Explain to them how interest works and how their money will grow. Open up a checking account, as well, and allow them to have a debit card. Conduct weekly or biweekly check-ins with your child to view the bank accounts and discuss how much was earned, spent and saved.
Living Below Your Means
One of the best things you can do to achieve financial success is to live below your means. Many people report that the best financial decision they ever made was to live below their means and stay out of debt. Teach your child how to live within their income early in life and lay the foundation for success. The best thing you can do is to help them learn how to take control of their money so money does not take control of them.
Spencer Savings Bank can get your student started with a checking or savings account. There are some great features designed specifically with students in mind. View our StudentEdge Savings and StudentEdge Checking accounts that both cater to college students’ needs. (Also, if you happen to have a student attending TCNJ college in Ewing, Spencer has a Financial Center located right on Campus Town.) Wherever you may be, we are just a click and phone call away. View our student and IRA products on our website and contact your local financial center for more information.