The Personal Finance Podcast - 14 Ways to Set Your Kids Up To WIN Financially

Episode Date: September 22, 2021

72. 14 Ways to Set Your Kids Up To WIN Financially We have a YOUTUBE channel! Check it out here!  Our Latest Videos:  How Much You Need to Save to Retire (Master Saving Money!) How to Become a Millionaire With a Small Amount of Money (Is it Really This Easy!?) Got questions? Ask me on Instagram Here. @mastermoneyco This is the fastest way to get a response from me. You can also ask questions on TikTok @mastermoneyco Sponsors Thank you to Mint Mobile for sponsoring the show! Check them out at mintmobile.com/PFP Thanks to Policygenius for their support! Get free life insurance quotes at Policygenius.com Thanks to our sponsor Manscaped (Manscaped.com) for sponsoring this episode of the podcast. Use code PFP20 at checkout for 20% off + Free Shipping! Want to Support the Show? Follow on Spotify or Follow and Leave a 5-Star Review on Apple Podcasts! Today We Discuss:  How to Teach Your Kids to Save. How to instill good money habits in your kids. How to prepare your kids for adulthood. How to help your kids build a great credit score. More Episodes You Will Love:  The Stairway to Wealth (Where to Put Your Money In Order!) How to Optimize Your Bank Accounts How to Become a Roth IRA Millionaire How to Become a 401(k) Millionaire Savings Rate Episode! Why Index Funds Are King (Plus My Favorite Index Funds!) The Fastest Way to pay off Debt  How to Run the Numbers on a rental Property  How to Spend Money on Things That Bring You Value (Live Your Best Life!) Check out all the Stuff I Recommend!  M1 Finance Open a Roth IRA Personal Capital Free Wealth Management + Budget App and Fee analyzer!  CIT BANK (Best Savings Account) Best Personal Finance Books  The Simple Path to Wealth - J L Collins  The Millionaire Next Door - Thomas Stanley I Will Teach You To Be Rich - Ramit Sethi  Rich Dad Poor Dad - Robert Kiyosaki ** Some links may be affiliate links and we earn a small commission at no extra cost to you. We only recommend products we truly believe in.  Check us out on social fam!  Twitter Dollar After Dollar Instagram www.thepersonalfinancepodcast.com www.dollarafterdollar.com www.mastermoney.co Learn more about your ad choices. Visit megaphone.fm/adchoices

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Find your advisor at IG Private Wealth.com. On this episode of the Personal Finance Podcast, we're going to talk about 14 ways to set your kids up to win financially.com. And today on the Personal Finance Podcast, we're going to talk about 14 ways to set your kids up to win financially. If you have any questions, hit me up on Instagram at Master Money Co. And follow us on Spotify, Apple Podcasts, or whatever podcast player you love listening to this podcast to. want to help out the show, leave a five-star rating and review on Apple Podcast. And if you love video, check us out on our YouTube channel at Master Money on YouTube. Now, today, we're going to touch on a subject that we haven't covered yet here on the

Personal Finance Podcast. We're going to talk about the 14 ways to set your kids up to win financially. And what I'm going to do is I'm going to give you an overview of a bunch of different things that you can teach your kids or that you can set up for your kids so that you can allow them to become wealthy. You can start to build wealth for your kids because many studies have shown a lot of our money habits specifically when we become adults actually happen based on what happened when we were kids. And that's with a lot of things in life. But specifically, financially, a lot of people pick up habits that their parents have taught them or things that people around

them have taught them. So it's extremely important on how you set your kids up to win. Because a lot of times, if you don't set your kids up to win, you're either setting them up to fail financially or they're going to have to figure it out and pick it up themselves. So you have to understand the right directions to push your kids to allow them to build true wealth. Because this is something that can be taught. Anybody can do this, but you have to know exactly what you're doing. Because what happens to a lot of people who are poor and a poor mindset, They think of things like, I can't afford that. Or they don't know how to save money or they don't have an emergency fund.

When that happens, the problem that comes into play is that's how you keep your family in poverty. So my goal and one of the original reasons why this podcast was created was to teach people who were never taught how to build well. Because most people don't know how to handle their money. But what I want to do is you take the principles from this podcast and our future podcast says, well, so that you can allow yourself to teach yourself about money, to teach your kids about money, and what happens there? All the sudden,

your family tree changes because the education is there. They're handing it down to their kids. They're handing it down to their kids. And it's the classic, teach a man to fish or teach a woman to fish. Because what's happening here is you're changing your family tree dramatically. And before we jump in, even if you don't have kids,

this is a great episode to listen to because if you plan on having kids in the first, future, you definitely don't want to miss out on these 14 items. So if you're into that, let's get into it. So the first one is to open a 529 account. And here's what a 529 plan is, if you've never heard of it. It's a way to save up for your kids college. So it's a tax advantage savings account designed for education expenses. So you can use a 529 plan for a wide range of education expenses, including college expenses, K through 12 tuition, and even certain apprenticeship costs. And the cool thing is you can even use it for student loan repayments.

So there's a lot of benefits to having a 529 plan. The downside is if you don't use the money for education expenses, then you're going to pay a 10% penalty. So there's tremendous amount of tax advantages to a 529 plan, but the money has to stay in that account for the tax advantages. and then no income taxes will be due on those earnings. So the cool thing about the 529 plan is you can invest this money in an index fund. For example, my second son was born this year. So what we did was we opened up a 529 plan and started investing it. Now, as he gets closer to his college years,

we'll potentially downgrade some of those index funds into bonds because the last thing I want to happen is the market to have a correction right before he goes to college and all that money is cut in half. But investing that money, if you have a long time horizon, in which I have 18 years for him is absolutely the perfect way to start saving for college because you get 18 years of compound interest

and you've heard us talk about many times what compound interest can do for your money. So look into a 529 plan. In the future, we're going to have an episode talking about all the options surrounding college education, how to save up for it because there's a bunch of options

if you're worried about your kids not going to college and how you can actually loophole around that. So we will have an episode about that in the future. We've had numerous requests on that. So we will definitely be doing that episode in the future. So make sure you're subscribed or follow on whatever podcast player you love listening to this to.

Number two, encourage college classes in high school. Now, here's what this does. Because a lot of high schools now offer college classes where you can either go to the local community college or the local state college in your area. And this reduces the overall college tuition costs that your kid has to pay when they go to college. And in addition, it reduces, if they have to go get student loans, it reduces the amount of their student loans. So they're going to be saving thousands and thousands of dollars just by going to these college classes. And specifically, if they get student loans, it's going to be tens of thousands of dollars because that money is compounding against them on the back end. And many times, student loan interest rates are way too high.

So you want to reduce this as much as possible. So encouraging college classes in their junior year and their senior year is going to be extremely, beneficial and it accelerates their learning path. So what that means is their earning power goes up at a younger age, which means they can start investing and doing all these other things as well. Maybe they don't go to college for only three years if they have enough college classes in high school. So this is extremely powerful. It's a great way to reduce tuition costs early on. Number three, and you can start this at a very early age. This is extremely important. I think a lot of people do this is give them an allowance. Now what is giving them an allowance

actually do. It helps them learn about earned income. So the big thing is learning to earn your own money is extremely important. Now, if you have chores that need to be done around the house and you don't want to give them an allowance because that's the chores they do, that's all you, man, parent on. But if there's extra things they could do around the house beyond their chores to give them an allowance, then offer that opportunity because it allows them to see how to earn income. And if they don't do something, they're not going to earn anything. So it reduces laziness. It reduces a number of different things. It also shows them how to earn income.

And if you can give them additional opportunities to earn more and teach them about the power of increasing income like we talk about on this podcast, that is extremely powerful. That is extremely powerful to teach them how to earn more money early on. Or maybe they have opportunities to work in the neighborhood for other neighbors who maybe need chores or different work around their yard or whatever it is,

then allow them to go after those opportunities. because increasing your income is so powerful, and if they learn that at an early age, they may be able to retire extremely early. Number four, teach them how to save money in a bank account. Now, there's a bunch of steps that you want to go through when you do this. The first one is teach them how to open an account, sit there with them, help them open an account,

show them how this works, how you go about doing something like that because their high school, their middle school, their elementary school is not going to teach them how to do that. Then you could teach them how much money adds up when they save it. So show them when you put X amount in a savings account every time you get your allowance,

if you put half of it in there, for example, look how much this can add up over 12 months and you can add it up on a calculator or show them on a spreadsheet or whatever you want to do, but it shows them how much money they could have at the end of each year if they saved a portion of their income. Now, how much should they be saving early on? My suggestion, and you could do whatever you want,

you can do whatever you want with all these suggestions, obviously, but my suggestion is to start with 50%. Because if you've ever heard our savings rate episodes, if they get in the habit of saving 50% of their income, they can retire extremely fast when they start their real job. And if they get in the habit of just saving half all the time, half, half, half. They'll be retired in their 30s if they start doing that in their early 20s when they get their first real job.

So teaching that early on is extremely important. Pass down the fire, my friends. Pass down the fire. And then another option is to teach. them how to save money in a banking account and this is something I'm going to be doing my kids are still too young I have a three year old and an infant is I'm going to start the 401 dad what does that mean every time they save money into their savings account I'm going to match it you boys gonna match it I'm going to show them how to work the employer match early on I'm the employer I'm going to match

their savings rate so each time they save 10 bucks 20 bucks 30 bucks 401 dad is going to match it so think through a couple of those options maybe they work for you maybe they don't but that's a couple of ways to teach them how to open a bank account and start saving in a bank account number five if you have kids who are older help them establish credit history so there's a couple of ways that you can do this the first one is if they're over 18 or at the age of 18 you can help them open a secured credit card now what does that mean a secured credit card is backed by cash so if they want to spend $100 they put $100 cash into that account the secured credit card, and they can spend the $100.

And what that does is it starts to build up their credit. It actually gives them a credit history. And if they're over the age of the 18, you can also add in making sure they're on their own cell phone bill, the internet bill, all of those different things because it helps them establish credit. And you can also add them as an authorized user on your credit card. But the only time to do this is if you have good credit A and you're responsible with your credit cards.

If you even have an ounce of credit card debt, do not do this. The last thing you want to do is hurt your own child's credit. But you can add them as an authorized user if you're responsible, and that way they can start building up credit that way as well. So these are three great options. I think the secured credit card is the best option because it guarantees that they're going to be building up credit because it's backed by cash so they can't spend anything they don't have.

Number six, have a life insurance policy. On this show, we haven't touched on life insurance a ton yet. But the true thing is, the only reason to have life insurance is if you have depend on you. Life insurance, in my opinion, is not an investment. Life insurance should not be sold by someone who wants to gain a fee based on you buying their life insurance. What life insurance is for is if you have depend on your income, you have people who depend on your income, whether that's a spouse, whether that's your children, whether that's an aging parent. if they depend on your income to live, then you need life insurance for their protection.

So when it comes to your kids, having a life insurance policy in place is extremely important. Reason why is if something happens to you and they depend on your income, then they're not financially burdened based on your absence. And that's the key here is making sure your family's not financially burden. Now, do you have to go crazy and get some crazy policy? Absolutely not. But having some sort of policy in place so that there's not a huge burden on your family if you are not with them anymore.

Number seven, involve your kids in certain financial decisions. Now, this one is super cool. I think a lot of times parents try to glaze over this and they don't actually look into involving their children in financial decisions. But how are they going to learn if they don't see it happening in real time? That's my philosophy on this. So teaching them how and why you make certain financial decisions,

you're not going to ask them what you should do with your retirement account, but you should talk through certain financial decisions because it's going to be, extremely beneficial to them. You could talk through why you're investing the way that you do. You could talk through why you save X amount of dollars every single month. You don't have to tell them I'm out, but why you save the money every single month. You could talk about reducing costs and why you would want to do that so you can invest more money. You could talk about evaluating grocery bills and how you have to manage those costs as well. There's a number of things that you can do.

These are just life lessons that they need to know. And so many kids grow up and have never heard any of these things before. Nobody in school taught them and their parents didn't teach them. How many of you have woken up and you got to adulthood and you're like, oh shoot, I have no idea what I'm doing. That's because you weren't taught. And imagine going into that being fully taught, especially with the knowledge that you can gain just with all the free information out there now. There's so much beneficial information that you can pour into your child, that you can give your child so that you can set them up for success. Because if everybody did this, if everybody taught kids what happens when you invest your money look how it compounds look how it grows and they

learned this at an early age and the seed was planted in their head imagine how amazing and how beneficial that could be to their life because what do they see early on they see people bawling out they see people buying expensive clothes and purses which is fine there's nothing wrong with that but if that's the first thing they see and that's the poverty mindset and that's a poverty mindset and that of teaching well if you buy assets your assets can pay for these things and look how amazing your life can be because now your assets are paying for your liabilities and you have no issues there. So there's so many things that you want to talk about and involve them in certain financial decisions that there's so much benefit to their life if you do that.

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Canada's car marketplace. Number eight, open up a UTMA account. So we haven't talked about UTMA accounts. We'll talk about this as well. in a future. But what that means is it's a uniform transfers to minor act. Now, who cares what that name actually means because it has nothing to do with what the account actually does? This is a way for you to start investing money for your kids. It's an account that you can put money in and avoid tax consequences until your kids attain legal age, but it's a way for minors

to start investing. And it's a really cool account. It's a really cool way to start investing their money because this is how it works. A person can name a custodian. and it could be a donor, it could be your parents can name a custodian to be you, who has the fiduciary duty to manage and invest on behalf of a minor. You could be the person who's in charge, doesn't matter. But what happens here is you put money into a UTMA account, and you can invest that money for your kids. And it's a safe way to invest your money for your kids

because you can actually put them as a beneficiary on there. Because the difference here is instead of using this and you use, say, a brokerage account, well, the brokerage account is in your name. And if you don't will it properly, then it may not go, to your children in the event of some sort of situation where a UTMA would go to your children when they become of legal age. So it's a great way to save up for your kids and teach them about investing because teaching about investing is one of the most important things that you can do.

Now, how do you teach them about investing? There's a number of different ways that you can do that. One of the biggest ways I think to do it is to start off by buying stocks within their interests. One of the big ones to do that with is Disney. Most kids love Disney movies. They understand Disney. They understand what surrounds Disney. Disney, from Pixar to the toys they like, to all that kind of stuff.

So that's a great one to start off. You can start off with Mattel and the toys they buy around that. Start with the foods they like. If they like to go to McDonald's or whatever it is, you can start to show them things that they like and how they can actually buy into that company. And yeah, if you want to do additional income into index funds, you know, long term, it's going to be either going to be better off. And that's great as well.

But showing them individual stocks and how they work is a great way to teach them how to invest inside a UTMA account. Number nine, add them to your car insurance policy. So if they're older, they're starting to drive, things like that, there's a bunch of benefits to adding your kids to the car insurance policy. Four of them are, it lowers the premiums for your child. So usually, especially if your kid is 18 years old, if you put them on your car insurance policy, their premiums are going to be lower because premiums for 18 year olds alone without

you on their policy is going to mean that the premiums are going to go sky high because vendor vendors are kings with 18 year olds. If you put them on your policy, their premiums are going to be reduced because you're co-signing with them. Also, you qualify for more discounts if they're on your policy. So there's a bunch of discounts out there for teen drivers. So look for that as well. It simplifies policy management so that you don't have to go out there and have multiple policies that you're paying and figuring out what you're doing. It's just all on one policy.

And you're gaining coverage for your team because adding your teen driver helps to provide coverage if an accident occurs. Because if your child isn't listed as a driver on your policy, but still drives one of your vehicles regularly, coverage could be denied in an accident. You want to make sure that they're on your policy. It's much easier, specifically, if they're still under your roof. Number 10. Now, this is a big one for me.

All of you know this, if you've ever listened to this podcast, if they earn an income, invest in a Roth IRA for them. So the only way you can invest in a Roth IRA is if you have earned income. But if you start this early, you're getting money into a Roth as early as possible. This is an amazing account to get money in as early as possible because there's low limits to a Roth IRA. At the time of recording this, you can get $6,000 a year in a Roth IRA. But if you start investing early into your kids and you could get that money into a Roth IRA, maybe they have a job down the street at the local grocery store or whatever it is,

then they have her an income, then they can do this. Now, you can also, if you have a business or something like that, you can hire your child to do just specific tasks within your business. You can also contribute to a Roth IRA that way. a bunch of different ways that you can set this up, but try to find earn income for your children so that you can invest in a Roth IRA because that is one of the most powerful ways to start investing with them because they have a low tax bracket so they can put taxable money in and it grows tax free so they don't have to pay money on the back on those taxes. So that's extremely

powerful for kids who have a long time horizon. Number 12, make sure you put a guardian in your will. If you don't have a will, we're going to have an episode coming up on how to set up a will on how to do that. But make sure you're putting a guardian in your will because you want someone who's going to be protecting your children if something happens to you. Now, wills are extremely important, specifically if you have beneficiaries,

like your children or like aging parents, but you have to have a will to make sure your money goes in the right place if something happened to you. Number 13, keep them on your health insurance policy until they turn 26. So after they turn 26, they have to have their own health insurance policy, but up until they turn age 26,

just eliminate that cost for them. Why not? Keep them on your health insurance policy, specifically if you work at a company that has great health benefits and allows you to have a family plan. You already have a family plan in place anyways. Just keep them on that policy. Don't make them go out and get their own policy if they don't need to. It saves them a ton of money and allows them to save additional income so they can start

investing in things like that. And then number 14 is to teach them good work habits. So teaching kids proper work habits and making sure they're disciplined in terms of of their work ethic is extremely important. Why? Because how do we actually start making money? We start making money with good work habits. And yes, working hard is not everything to making money. I'll be the first one to say that. Working hard is a lot to making money, but it's not everything. You can not work hard and make a lot of money. But teaching them work ethic early on is going to truly guarantee that they will at least have a stable income coming in in their future and be able

to provide for themselves and their family. So work ethic is extremely important because without work ethic, you can't increase your income because what do we talk about all the time? The only way to increase your income is to work a little bit harder. It's got to be working a little harder than everybody else because a lot of times people are taught these days just how to get by. But getting by isn't enough anymore. And if you are one step above people who just get by, which is very easy to do nowadays and you've been taught work ethic early on, you're going to be unstoppable because the competition now just isn't working that hard. So if you teach your kids to work hard teach them disciplined work ethic, it's going to absolutely change their lives.

Listen, I hope you guys learned about a couple of different options and how to teach your kids about money. We're going to have a bunch more episodes like this. In addition, we're going to have a bunch more YouTube videos like this as well. So make your subscribe to the YouTube channel. We're going to do an entire kid series on that YouTube channel in the future. And also make sure you're following this podcast so you can see all the new episodes that come up when we do this.

Now listen, all these options are just suggestions. They're just ideas that I'm throwing out. You don't have to do each and every one of these, but think through which ones fit your family and which ones fit your family's value. Setting your kids up to win financially is so incredibly important. It's setting them up for life and setting them up to teach them how to actually manage money

and how to actually go about life, building wealth. Because nobody else is going to teach them. The only opportunity they have is learning from you. So if you have any questions about this episode, hit me up on Instagram at Master Money Co. That's Master Money, C. and follow us on Spotify, Apple Podcast, or whatever podcast player you love listening to this podcast, and if you want to help out the show, leave a five-star rating and review on Apple Podcasts.

And don't forget to check out the YouTube channel, Master Money. I'll leave a link to it in the show notes as well. Thank you guys so much for listening. I truly appreciate each and every one of you, and we'll see you on the next episode. Thank you guys so much for listening. And if this is your first time listening, consider subscribing so you never miss an episode and share this episode with a friend. And don't forget to leave a rating and review on iTunes as well, because our goal is to bring as much value to you as possible. And we're trying

to spread this message that money can buy freedom. That's what money is there to do, is to buy more freedom. So thank you again so much for listening, and I hope you have a great day. Rosen lasagna, medium power, 15 minutes. Sounds like Ojo time. Let's play. Feel the fun with Playo. The online casino with all the latest slot and live casino games. What you win is yours to keep with no wagering requirements, instant payouts, and no minimum withdraws. Hey, I just won. Woohoo! Feel the fun.

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