I don’t know about you but I didn’t have the most financial savvy parents in the world. I’m not saying they were terrible with money, but they just didn’t know much about it or how it worked. One thing I do know is that I’m not alone here. Many of our parents had bad money habits or made less than optimal money decisions. However, it is our obligation to stop the generational money ignorance and put our kids on a good financial track. With that being said, I want to give you my top tips to help jump-start your child’s financial success.
1) Add them as an authorized user to your good standing credit cards
So what does an “authorized user” mean? To me, the phrase sounds scary and permanent but it’s actually quite the opposite. Adding someone as an authorized user on your credit card means that they receive your credit history with that cardholder, in addition, to having minimal access to that account. What most people don’t realize is that you never have to actually issue that person a credit card. Moreover, you can take the person off whenever you wish. This is one of the fastest ways to increase your child’s credit score 100+ points.
Let’s look at an example;
I have a long-standing good status with a credit provider so I can add my 14-year-old daughter as an authorized user. Once done, she now adopts my long credit history of on-time payments and goes from no credit to excellent credit instantly. The best part is she’s never issued an actual credit card so I have no worries of her going out on a spending frenzy. Amazing right!?
2) Make them pay “taxes” on allowances and put that money away for them?
As our children get older, we tend to give them household chores in exchange for compensation. While this money isn’t legitimately taxable, I recommend imposing a 10% tax on their allowance. Why? Two reasons. First, it gives them a real-world understanding of how their future compensation will be treated. Secondly, you can take this 10% withholding and invest it for them, giving them a head start on financial freedom.
3) Fund Child's Roth IRA
My last tip flows perfectly into this one. Now that we have taken 10% of our children’s allowance money, where do we put it? That’s right, a Roth IRA. As long as your child has earned income for the year (if they have an actual job), you can fund a Roth IRA for them up to $6,000 or their total compensation (whichever is lower).
4)Start a 529 plan
A 529 plan is a college tuition savings plan that you can start for your kids and anyone can contribute to it. So next time you have a family gathering, tell grandma, grandma, cousin Pete, and uncle Rukus to chip into your child’s 529 plan. If they need to be convinced further, let them know that any money contributed could be a tax deduction! Yep, certain states like Illinois gives state deduction for money contributed to 529 plans.
Now that you have these tips, you have the power to drastically improve your children’s financial future! So go implement these today and your children will thank you later. For more tips watch this TV segment I was featured on.