Congratulations on being a parent who is prepared to accept the responsibility to teach your children the value of money. It doesn’t matter what age your children currently are; now is the perfect time to help them. Ideally, as soon as you have made the decision to have a child you can set up the foundations for their financial security. The strategies in this article and the coming articles are for you as the parent to implement and manage. For information on how you can help your kids implement strategies for themselves, refer to our previous articles and blog posts.
The first step to establishing a good foundation is to open up two accounts for your child; an Education Account and a Wealth Account.
As the name suggests, the Education Account is for your child’s education. Paying for your kids’ education may well become the largest expense you commit to when raising your child, particularly given that the majority of young people choose to complete a college education. The term Education includes both traditional education and also learning from other experts in business, finance and life skills.
The purpose of the Wealth Account is to utilize the pay-yourself-first concept that the wealthy have followed for years. The aim is for your child to accumulate enough assets to generate the amount they require to fund their lifestyle from the income generated through owning the investments.
Both of these accounts involve the funds being invested into long term assets which provide high returns. It’s all about having your money working harder for you and taking advantage of compound interest – you don’t need tons of money to create great results as long as you start early.
Whilst your child is very young, you will contribute to and manage these accounts. Once you are confident your child has demonstrated that they can manage these accounts and they are legally able to own the accounts, you can transfer the ownership to them. You should decide when this occurs based on the results you see your child achieving in earning and managing their other money.
As your child gets older, it is certain that their needs and (most likely) wants will begin to increase. At this point, set up a third bank account – a Savings Account. This will allow them to purchase those larger items and will teach them the importance of managing their money and to set goals for things they want.
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