STAGE ONE: CRADLE TO COLLEGE
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Alas, few of us come into this world with golden rattle in hand. But that doesn’t mean we can’t start to build wealth from day one. For parents, this might mean opening a college fund. Grandparents might want to contribute savings bonds. Then, as time goes on, you can start teaching kids to handle their own money, set an allowance, encourage them to take jobs and help them make smart financial decisions. Read on to see what parents can expect at each stage.
What can parents can do to get kids off to a smart start?
- Be sure to obtain a social security number for your newborn as soon as possible.
- Set up a fund for future expenses such as college.
- It’s an excellent idea to consult with one of our MHV Investment and Retirement Center Financial Planners to set up a savings plan for your little one with the right investment vehicles for the long term.
Teaching Financial ABCs with Allowance, Budgeting and Saving
Many experts recommend starting a child with a small allowance as soon as he or she is old enough to understand the concept – usually around age 5 or 6. A common rule of thumb is 50 cents to a dollar for each year of age, but the amount should make sense from your family’s financial standpoint.
The allowance should be given on the same day, at the same time, whatever the frequency. With smaller children you’ll probably want to start with a weekly allowance.
While it is tempting to attach chores or other responsibilities to an allowance, there is also value to having an amount the child can count on and learn to budget for each month. You may want to consider the lower end of the money scale for a steady allowance, and giving the child the ability to earn more money through chores.
- Help your child save
- Once you decide on an amount and frequency of the allowance you should discuss how you expect the money to be used. This includes allocating an amount of the allowance to go towards savings. This will help your child to learn the value of money
- Explain how interest works, and use simple online calculators (like the one provided under MHV’s Financial Resources) to help figure out how much “free money” he or she will add to their savings account through the magic of compounding.
- To encourage saving, you can promote the allowance with regular “merit increases” for staying on track and reaching simple financial goals.
- MHV has great savings options to get your child started. Stop by one of our branches with your child to introduce them to the concept of saving money.
- Most importantly, allow your child to occasionally withdraw money from the account for an item that has been saved for. If the child sees money go into the account and never come out, he or she will lose interest in the project.
It’s fairly easy to maintain control over your child’s finances through the elementary school years. But once kids hit middle school and the turbulent teens, increased mobility, peer pressure and impulsivity make it more challenging to keep them on a good financial track.
Rethinking the Allowance-Learning to Spend Wisely.
- Sit down together and figure out what you spend each year on items like your teen’s clothing, entertainment and gifts. Allocate some of the purchasing power from you, the parent, to your child and increase their allowance if needed.
- Take your teen shopping with you and discuss the ways that you budget and decide on purchases. Teach them to read labels and comparison shop.
At this stage, most teens are interested in handling more of their personal finances.
Once faced with a limited budget and the freedom to decide independently, you may be surprised to find that your teen falls out of love with designer labels and develops a healthy respect for value.
Your Teens First Job
- Help your teen figure out what he or she can realistically do to earn money, and establish a budget for that money.
- Break down income to cover three categories: essential purchases, savings and discretionary, “fun” items. What is considered an “essential purchase” varies from family to family.
This is a time when many kids start to take on after-school or odd jobs, such as babysitting or cutting lawns.
It’s Never too Soon to Save for College
- Make sure your teen knows what this fund will cover – will he or she be expected to contribute toward room and board? Clothing? Entertainment?
- Start to discuss the different types of schools – community colleges, state colleges, private universities – and their costs. If your child is interested in attending a particular type of school – for example, art or design school – this is the time to start building that skill set, either in school or via extracurricular activities.
If you don’t already have a college savings plan, now is the time to set one up at MHV and start funding it aggressively.
Hopefully you have already followed the previous advice above and your child understands the value of a dollar and how to earn it. No? Hurry, there is no time to waste! Open that MHV Youth Savings Account for your teen.
Learning to Budget with Checking
- There is no better way to learn budgeting and spending skills than by writing and recording checks, balancing statements and otherwise managing a MHV checking account.
- Have your teen enroll in the MHV Young Adult Account Package with plenty of cool perks
- This is the time to sit down with them and discuss withholding and the importance of filing a return every year – especially since in these low-earning years they are likely to get most, if not all, of their tax money back.
Using Credit, Building Credit
- He or she needs to understand exactly how credit cards work and what will happen if a payment is late or only the minimum amount is paid – and how this can impact on his or her ability to buy something large, like a house, down the line.
- Some financial experts suggest giving your teen an authorized user’s card on your credit account. Your child gets a card with his or her name on it, but pays you for any purchases made during the month. If your teen doesn’t pay you on time and in full, you should charge interest on the overdue balance.
- Another option is a pre-paid credit card, which only allows the holder to withdraw the funds that have been placed in the account. This allows them to practice mastery over plastic without the opportunity to get too far in debt
- Later, your teen can move on to a credit card with a low line of credit. In this way, the high school senior can build a credit history that will be invaluable later in life. MHV has great, low-rate Visa credit card options.
Choosing and Paying for College
- Include them in the process of looking at financial aid alternatives, including loans, grants and scholarships.
- Check out MHVs’ great resources to help make planning and paying for college easier.
- As a member of MHV you have access to Collegiate Funding Solutions free college planning tool which helps you to compare costs between schools and find scholarships your student qualifies for.
- Once you apply for Federal Student Loans and Scholarships/Grants, apply for MHV's CU Student Choice Private Student Loan Solution to fill the gaps left behind in tution costs. Applying is easy online and gives your student access to a full Line-of-Credit (LOC) which can be used over multiple years
Now, that your teen is independent and perhaps started their first job they should also open a checking account
Teenagers often get their first concrete understanding of income taxes when they discover that their paycheck is much less than they had expected.
Even before your teen orders that cap and gown, credit card offers will probably start to arrive in the mail. You can’t overstress the importance of teaching your teen to handle credit wisely.
In the high school years, college-bound teens will begin to narrow the field, ultimately visiting the campuses that interest them.