Many of our clients have children, and it’s not unusual for the clients to ask us for tips or guidance on educating kids about personal finance, since the subject is generally not covered in school. Yet, research has shown that by age 3, kids can grasp basic money concepts. By age 7, many of their money habits are already set.

If you have children, you’ve probably thought about how you should teach them about the purpose of money and the concept of saving.

Today, we’re sharing with you the thoughts of one of our advisors.

With four young children, I’ve decided to start teaching them about money and saving. I must confess I don’t have all the answers, and helping kids understand what money is and how it works is a “work in progress”.

To start, I’ve taken each of my children to a local credit union to open an account, have a change machine count their coins, and deposit the funds in a certificate of deposit.

My wife and I explained to them that it will be a little over two years until they can withdraw their money – side note, this is also a lesson on delayed gratification for today’s “I want it now” culture – but that the credit union will reward them with extra money as long they keep the CD for the duration.

We show them their quarterly statements each time they arrive in the mail, and so they’re able to see that the interest adds up – they’re earning about $4 in interest every month.

We’ve also started taking some of the individual stocks that we own and gifting the shares to each child. This passes the tax burden from the parents to the child. They can sell the stock with no tax consequences, and use the proceeds to buy a low-cost, well-diversified ETF (exchange-traded fund). We’re careful not to trigger the so-called “kiddie tax” and are mindful of any merit aid for college that the kids may lose out on by having assets in their own names. While these are small amounts of money today – on the order of $100 per year – it will add up over time. We’re hopeful that this will teach them a bit about diversification and tax-savvy planning.

We have yet to broach the subjects of the “Rule of 72” or compound interest, but that may be just around the corner.

We’d love to hear what you did, or are doing, to teach your kids or grandkids about money.

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