The gift-giving season is upon us. I have already spied different online gift guides. I enjoy browsing other’s curated gift guides, even though I rarely purchase items from them. I am more of a window shopper at heart. In that spirit, I have a few gifts you might consider giving your children that provide some money, and even more importantly, financial literacy.
Financial literacy means that your children possess skills that allow them to make smart decisions with their money currently and into adulthood. Kids gain competence by starting small, and slowly gaining experience with money, budgets, stocks, and credit.
Give them money: Set up a bank account
Your kids might not ever balance a checkbook – a time-honored skill that I dutifully learned from my parents – but they do need to understand how to track their money. Step 1 is setting up a bank account and then having them track the amount of money in that account. Ideally, they will have the ability to implement overdraft protection by linking their account with another.
When they receive money for birthdays or events, insist they deposit it in the bank account. We started this when our son was five. I find that the younger they are, the more the physical act of depositing and withdrawing money is important, rather than me keeping the cash, and then transferring the money from my account to their account.
Give them stock: Set up a custodial account
You can purchase stock and other investments on behalf of your child as a minor through a custodial account. A custodial account is a brokerage account that can manage a wide variety of assets: trading, mutual fund, cash management. The account is treated as an irrevocable trust and may only be used for the benefit of the minor. This is a great gift for kids who are old enough to start learning about compound interest. You can certainly start the custodial account when they are younger, but the beauty of this particular gift is introducing your child to the concept of investing. Help them track their investment monthly, and discuss what long-term performance means.
Give them the habit of charity: Give a gift in their name
Last year, when my kids made out their Christmas wish lists, I pulled up a contribution gift catalog, and told them they could select a gift from the catalog within a particular price-range. I explained that the gift would not be for them, but for someone else who needed it. I am not, in fact, a huge believer, in these type of gift catalogs. I like my dollar to go as far as possible, and dollars should go toward greatest need, and give the receiving organization flexibility. However, for very young children, building a habit of giving is easier when dealing with items that are more tangible. This tradition helps direct our attention toward others.
Give them the gift of financial management: Set up a budget
We have a family system for tracking money, and share this with our children. Around age six, my son started to show interest in money, and we began telling him how we pay for things. One of the main ways we explain our values is how we spend our money. We have explained to our son a few times that the reason we have delayed some of the work on our house project is that we prioritize giving to charity on a monthly basis.
As your children get older, you can help them set up their own, very simple budget:
Income:
- Allowance
- Gifts
- Money they earn
Expense:
- Saving
- Investing
- Gifts
- Charity
- Spending on themselves
Children receive our financial values over the course of their lives. They are keenly aware of what matters to us, as they watch how we spend our time and money. Helping our children develop financial literacy is one of the greatest gifts we can give them, as that equips them with the skills that will help them put their money toward their priorities as adults. Money is one of the principal ways you express your values. Consider giving a financial gift to your child that will last them a lifetime.
Photo by Douglas Hawkins on Unsplash