In fact, kids start to understand the basics of how money works when they’re just three years old, according to some experts. And when they’re seven, a lot of the financial habits they’ll have for the rest of their lives are set. So the earlier you’re able to teach your kids about investing their money and the stock market, the better their financial habits are likely to be as adults. 

Investing is a way to put your money to work in a diverse portfolio of stocks, bonds, and ETFs, with the objective of seeing your money grow over time. But when your kids are interested in the next new video game or toy, it can be hard to get them interested in saving and investing their allowance or babysitting money in the market. 

With that in mind, Stash has put together these resources to help teach your kids about investing and to help you get started as a family:

The post Stash’s Guide to Teaching Your Kids About Investing appeared first on Stash Learn.

Depending on your goals, college savings plan, trust accounts, and even Roth IRAs can be highly effective for building the foundation of a child’s financial future. These accounts provide parents with specialized tools for investing on behalf of your children. A custodial account, meanwhile, is a simple and flexible way to save for a wide variety of near- and long-term goals for your kids.

What is a custodial account?¹

A custodial account is an investment account established in the name of a minor by an adult custodian. This custodian makes decisions regarding the assets in the account until the child is old enough to assume full control. You might see these accounts referred to by the laws that established them—the Uniform Transfer of Minors Act (UTMA) or Uniform Gift to Minors Act (UGMA).

When the custodian makes contributions to the account, the contributions belong fully to the child and cannot be retrieved. Otherwise, the custodian has complete control over the assets.They can determine how the money is invested and when it can be withdrawn. When the child reaches adulthood at age 18 or 21—also known as the age of majority—they take on these responsibilities for themselves.

Custodial accounts will typically be limited to a safe, low-return range of investments such as certificates of deposit or money market funds. A brokerage or mutual fund firm will grant you access to a wider variety of investment vehicles in a custodial account. These can include stocks, bonds, mutual funds and exchange-traded funds (ETFs).

State laws will vary with regard to a minor’s age of majority, the tax consequences of custodial assets and limitations on how much money you can add to an account annually, among other factors. Consult with your financial institution to familiarize yourself with these laws before opening an account. Federal tax rules, especially gift tax limitation, can come into play when you give money to your child’s account.

What are the benefits of a custodial account?

The benefits of custodial accounts are varied. First, they are easy to open. They are also flexible, and the assets can be put to any purpose that benefits the child, unlike 529 plans for example, which must be used for strictly educational purposes.

With some limitations and exceptions, gains on the assets held in custodial accounts are taxed at  the child’s income level rather than the custodian’s, which can mean significant tax savings. Remember UTMAs and UGMAs vary from state to state, and you should do your homework regarding your state’s custodial tax rules. 

Upon reaching the age of majority, your newly minted adult will be free to assume full control over the account and continue investing the funds or withdraw them for whatever purpose.

Are you financially ready to open a custodial account?

A crucial question to ask before making any investment is whether or not you are financially ready to do so. Just as you should ask yourself whether a particular investment suits your long-term financial plans, take the time to consider whether an irrevocable gift to a minor— a custodial account—aligns with your goals. Will such a gift hamper your ability to meet your own objectives? If so, you might not want to open one at this time.

What are your goals for the account?

If you are ready to open  a custodial account, consider goals for your child and how a custodial account can  achieve them. For most families, college education looms as the number one long-term financial goal. Remember that an education-specific account like a prepaid tuition or education savings plan may make sense if secondary education is your sole focus for your child.

Tuition may not be your only goal, however. A custodial account grants you and your child the freedom to use your custodial assets for a wide range of purposes, such as extracurricular sports, art classes or musical instruction. If your child needs a laptop or a guitar to pursue these interests, a custodial account is one way to save for such an expense. Just be sure to plan ahead for larger expenses such as a car or summer camp, if you want to draw from the custodial account for those big-ticket items.

How to open a custodial account

Opening a custodial account is similar to opening a standard bank or investment account. Since the minor is technically the owner of the account, you will need their social security number and other personal information. As the custodian you will receive any future communication about the account once it’s open.

When considering what type of custodial account to open, first identify your goals. Are you saving for the near-term, or for long-term goals like college or retirement? A custodial savings account makes for easier deposits and withdrawals at local bank branches, and provides easy access to funds in the short-term should you need them.² A brokerage account can offer access to a wider range of investment opportunities to help you target long-term savings goals. But invested funds are less liquid and harder to access should you need them on short notice.

Taking advantage of a teaching opportunity

Many kids lack a basic understanding about money, how saving and investing works, and how to stick to a budget. Opening a custodial account can provide an opportunity to educate your child and lay the groundwork for achieving future goals. You can teach your child what it means to set aside a small amount of money for investments every month or year, or how to evaluate investment options and interest rates, and track the performance of those investments over time. 

Teaching them the importance of compound interest and how it can boost savings over time, and demonstrating how to budget can help them achieve long-term objectives. By opening a custodial account for your child, you can take the first step toward developing that knowledge, setting them on the path to lifelong financial awareness and potential success.     With Stash+($9/month), you can open two custodial accounts¹ with a minimum deposit of only $1.00.³ Stash Learn can also help you teach your kids about the basics of budgeting, saving, and investing.

The post Why You May Want to Start Investing for Your Kids Now appeared first on Stash Learn.

Financial literacy is strongly linked to positive financial outcomes, according to a recent study by the Financial Industry Regulatory’s (FINRA) Investor Education Foundation. But many children don’t receive a financial education at all. Instead, they learn about earning money, saving, investing and spending from their own experiences.

Lack of financial literacy education in schools means that many parents must take matters into their own hands. Taking the initiative to teach your kids about money can better prepare them for the financial realities they’ll face as adults.

When should you start talking to your kids about money?

It’s never too early to start teaching children about money. In fact, they’ll likely pick up on your cues whether you set out to teach them or not—so start setting a good example early.

Kids are good at noticing how you feel, so consider what emotions you want to project around money. If you experience a lot of anxiety around money, they’ll notice, and they’ll make that association. If you approach money matters calmly and confidently, they’ll pick up on that, too, and hopefully use the same approach as they get older.

The words you use to talk about money also matter. For example, avoid using words like “broke.” Instead of saying you “can’t afford” something, try saying, it’s “not in our budget.”

Direct money lessons can be taught even to young children. Use coins to help them learn the value of money and different ways to count it. If you take your child with you to the grocery store, tell them how much each item costs as you put it in the cart. Or consider recreating a shopping experience at home, using coins and household items.

How to introduce kids to saving

A piggy bank is a classic first tool for saving, but your child may learn more effectively if they divide their savings according to a few simple categories. Give this a try: help them label four different jars with Needs, Wants, Goals and Causes. When they receive money for their birthday or from an allowance, encourage them to divide it among the four jars, considering which among them are most important.

This method is a great way to teach your kids the difference between wants and needs. For a child, a Want might be candy or a toy, while a Need might be something necessary for school or a sport. The Goals jar, meanwhile, is for things they want months or even years in the future, such as a new bike. And the Causes jar encourages children to set aside money for gifts, or for a charity of their choosing.

Conversations around the dinner table are another great way to start teaching your kids about saving. Even if it’s just once a year—during Thanksgiving weekend, for example—try having a discussion with the entire family about savings goals for the following weeks, months, and years. This is also a good time to discuss any charitable gifts you’re planning to make. Including your children in this conversation will demonstrate the value of planning and giving, and help them feel involved in the family decision-making process.

How to teach your kids about earning money

Teaching your kids about chores can help give them a sense of responsibility, pride, and self-confidence. Depending on their ages, kids can  do dishes, take out the trash, vacuum, mow the lawn, and help out with many other household upkeep activities. Consider creating a weekly chore chart to help your kids understand which chores are expected of them.

When you tie an allowance to these chores, you can teach your kids a valuable lesson about earning money. In most cases, children don’t see their parents working all day, so it can be easy for them to imagine that money is a resource that has no connection to any particular activity. Teach them that money comes from work, and treat their allowance as payment for the chores they do each week.

You might also consider giving your kids extra allowance money if they practice good savings habits consistently. This practice can help reinforce the value of saving.

Establishing money management

You can introduce young children to money and debt management by teaching them how to create a budget. One way to do this is to budget for an activity to do together, like a picnic. Explain to your child that you have a set amount of money to spend on the picnic and create a list of all the items you want to buy. This will help teach your child that you might not be able to afford everything you want under the budget you’ve set, and to prioritize certain items above others.

When your children are older, you can start including them in family budget discussions. This is an excellent setting for children to start learning about the various recurring bills you pay, and the money you set aside for regular expenses like food and gas.

Preparing for the long-term with a custodial account

Consider setting up a custodial account for your kids to help them save and invest while earning interest. All transactions will have to be approved by you, so your child can’t make investment decisions or withdraw money without your go-ahead. Take this opportunity to introduce your child to the concept of compound interest and its power to help them build wealth over time. Note: When children reach the age of majority, they get full legal control of the custodial account. The age of majority can vary by state.

With Stash+¹, you can open two custodial accounts for your kids², with a minimum deposit of only $1.00. You can use Stash to show your kids how to save for their goals and invest their money.³

How to set up a custodial account with Stash

If you’re ready to teach your child more about saving and investing, consider opening a Stash custodial account. Choose how much you want to invest, starting with as little as $5, and simplify investing by making automatic contributions.

The post Here’s How to Teach Your Kids About Money appeared first on Stash Learn.

Unfortunately, by the time most of us truly understand this advice, we’re already well into adulthood, having missed out on a decade or two in which we could have been putting money away. Luckily, parents can give their kids a head start by investing on their behalf.

By opening a savings or investment account for your child early on, you can help them grow a nest-egg that can later be used for important milestones such as paying for college tuition, or a down payment on a first home.

When your child is old enough to take an interest in personal finance, you can use those accounts as teaching tools to help them understand investing. Doing so can encourage them to contribute on their own once they’re old enough to earn money, and can help foster healthy financial habits.

What kinds of investment accounts can I open for my kids?

There are a number of different ways to start investing on your children’s behalf. You can choose which type of account may be best for you and your family, depending on your saving and investing goals:

• Tax-advantaged education accounts: Both Coverdell education savings accounts (ESAs) and 529 plans allow you to invest money to be used exclusively for tuition and other education-related expenses in the future. Tax advantages and contribution limits vary. But for parents concerned about paying for college, these plans can offer a way to stay focused on saving for education.

• Custodial Individual Retirement Account: If your child has earned income, you can help them invest it in a custodial IRA. You may open either a traditional or Roth IRA. As the custodian, you manage the assets for your child until they reach age 18, or 21 in some states.

• Custodial brokerage account¹: To give your kids the experience of investing themselves and  learning about the market, you can open up a custodial brokerage account. These accounts are made possible through the Uniform Gift to Minors Act (UGMA) or the Uniform Transfer to Minors Act (UTMA), and are often known by those names. The availability of either account will depend on the state in which you reside. Through a custodial brokerage account, you can include your child in decisions about basic investing. While they can weigh in with their thoughts, you ultimately have control of the account until they come of age.  

Why it’s important to invest for your children’s future

Giving your kids a leg up toward financial stability can go a long way toward helping them achieve their goals, whether that means attending a top university or traveling the world.

Starting to invest early allows you and your child to take advantage of compound interest— the returns earned on your principal, plus your past returns, which can help build savings faster.   The longer your child is able to invest, the greater their exposure to compounding will be, which may make it more likely for them to  reach their financial goals.

How to explain investing basics to your kids

The conversation you have about investing with your kids will depend on their age, maturity level, and interest in personal finance. For very young children, consider starting investing on their behalf now. As they get older, you can use the accounts you’ve opened as a way to broach the topic of investing.

You can begin with general concepts, such as how a stock works. You can explain that stocks are really a way of owning a very small piece of a company. When you buy a stock, you receive a certificate (either digital or on paper) that shows how many shares of that company you own. When a company performs well, it’s worth more; so the stock you own is worth more. If your stock gains value, you can sell your stock and make a profit. It’s important to point out that stocks can also go down in value as companies struggle or business slows down. If you sell that stock when the value decreases, you’ll lose money.

From here you can explain more complicated topics, such as risk and reward. You hope that stocks will go up and you can sell at a profit, but that is not always the case. You can explain the idea of diversifying—not putting all your eggs in one basket—to help mitigate risk. You can begin to explain the different types of investments that could make up a financial portfolio, such as bonds and mutual funds.

Central to any discussion of finance with kids should be the way that investing fits into a larger program of healthy personal finance and long-term financial stability. Check out the Stash Way to learn more.

How to get your children interested in their financial future

Most young children will have a hard time internalizing the importance of saving for retirement when they’ve never worked a job or paid their own rent. But kids can understand that saving money could help them reach specific goals.

• Investing for shorter-term goals: Encouraging your kids to save for things that are important to them can help them experience the satisfaction of setting a financial goal and reaching it. For example, even if they’re still a few years away from getting their license, your middle-schooler may be ready to start saving up for their first car. Saving and investing over a few years can help them understand the balance of risk and reward, as well as market fluctuations.  
• Choose familiar single stocks: Explaining to your kids that they’re able to own a small piece of a company they’re familiar with, such as Coca-Cola or Nintendo is sometimes the quickest way to get them interested in investing.. From there, you can explain that by owning a small bit of that company, they’ll get to share in the profits it earns, if and when it earns profits, by way of dividends. While the stock prices of many major companies would normally put them out of reach for young investors, Stash allows investors to purchase fractional shares of thousands of top stocks.

Before you open an investment account for your child, consider your family’s goals. These will help dictate what type of account you may want to open. Are you trying to save for college expenses in a 529 plan, or do you want to teach your child about investing for retirement in a custodial account? You may even want to open multiple accounts.

How to open a custodial account with Stash

When you subscribe to Stash+ ($9/month) you can create two custodial accounts and there is no minimum initial investment². You and your kids will have access to Stash’s educational tools to help you make informed decisions about their financial journey.

The post Making the Best Investment Choices for Your Kids appeared first on Stash Learn.