Just for Parents
Talking to Children about Money
Teaching basic money skills to children is very important. Here are a few tips to help you start your child on the road to being a financially responsible adult.
It is never too early to start helping your child gain a healthy respect for money and develop some good financial habits. Use an allowance to teach the basics by:
- Setting a weekly allowance to match the age of the child – a seven year old gets $7.00.
- Tying the allowance to some required chores, such as setting the table or feeding a pet.
- Dividing the allowance into three categories – 1/3 for immediate spending, 1/3 saved for some specific purchase (like a DVD) and 1/3 for a longer-term goal (like a Nintendo DS3).
The teen years may be the most difficult time to teach the importance of financial stability. Peer pressure, a desire to have what friends have, and the growing realization that they cannot have everything they want can add tension to any conversation about finances.
Teens can understand more complex financial issues and the fact that mom and dad will not always provide. Now would be the time to discuss how getting a job could help pay for the things they want. It is also the time to teach sound habits like balancing a checkbook, keeping track of expenses, and creating a budget.
Andrews Federal Products to Help You
Get your children a Sprouting $avers or Ca$h Commanders account. Andrews Federal is here to help you and your children manage your money wisely and make it work for you.
IRAs for Working Teens
Few teenagers think about retirement, but funding an Individual Retirement Account (IRA) may be one of the best financial steps they will ever take. The reasons are simple – taxes and time.
IRAs can be established by individuals of any age. The only requirement is that they have earned income equal to or exceeding the amount they contribute to an IRA. Contributions to regular IRAs can be tax deductible, but most teens have low enough incomes that much of their income is not subject to tax; or if it is, the tax rates are low. Roth IRAs are especially attractive for younger individuals because they offer the potential to accumulate funds that, if handled properly, will never be subject to income taxation.
Protect Your Children Online
Identity thieves target children, too. Children do not understand the importance of safeguarding personal information, like their Social Security number. Teach your child now about keeping their information safe.
- Use some type of parental control to block adult content from reaching your computer.
- Set email or firewall filters to block addition content that may be harmful to children and that come unsolicited to your email box.
- Install a tool to destroy spyware that may have been left on your computer.
- Know what site your child visits and make sure that its content is appropriate for children and is safe.
Paying for College
It is best to start saving for college as early as possible. There are several college savings vehicles available, many of which have tax advantages*:
- 529 Prepaid Tuition and 529 College Savings Plans – These are state-sponsored savings plans. Earnings in these accounts grow tax-free and withdrawals are tax-free as long as the money is used for qualified higher education expenses.
- Coverdell Educational Savings Accounts (ESAs) – Formerly called an Educational IRA, the Coverdell ESA is a college savings account that grows tax-free until the money is withdrawn. There are income and age restrictions and yearly contributions cannot exceed $2,000. Money is taxed before going into the account so withdrawals are tax-free as long as they do not exceed the beneficiary’s qualified education expenses for the tax year.
- Roth IRAs – Especially useful for parents or grandparents who have other funded retirement accounts, the Roth IRA can be used to pay for educational expenses. Earnings grow tax-free but contributions are not tax-deductible.
- Other Savings Vehicles – Savings accounts (including Custodial Accounts), certificates, money market accounts, bonds, etc. are all ways you can save for college. Research your options, consult your tax advisor, and choose what best works for you.
*Consult your tax advisor before selecting your college savings vehicle.