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Friday, January 21, 2011

Money Management for kids

In the process of teaching my kids more about money management, I have done alot of research online for tips, tricks, educational material, and info. I had come across a few sites that talked about teaching kids how to save, spend, invest, and donate their earned money.

So according to those sites, and many people I've spoken with, these are the rules for kids to follow when it comes to their earned money:

Save 30% - High yield savings account
Spend 30% - Day to day 'wants'
Invest 30% - College Fund
Donate 10% - Charity of child's choice

For example, if your child earns $8 this week, he/she should save $2.40 (30%), spend $2.40 (30%), invest $2.40 (30%), and donate $.80 (10%).

This teaches many lessons: budgeting, planning for the future, wants vs. needs, giving to a good cause, supporting your community, etc.

There are some sites that offer for purchase a 4 chamber piggy bank for this purpose, but it's not necessary to have one. I gave my daughters each a play check book to keep track of their spending and showed them how to use them. So far they have kept track of everything. 'A' even asked to put all her cash from birthdays and xmas into her savings. I was proud of her.

For the Investing, I found that a 529 savings account, which is a college fund, is the best option.

According to www.howstuffworks.com:

-You pay no taxes on the accounts earnings
-Your child does not have access to or control of the account - you do
-If the child does not want to go to college, you can roll the account over to another family member
-Anyone can contribute to the account
-No income limitations that would prevent you from opening one
-Most states have no age limit for when the money has to be used (check your states laws)
-If the child gets a scholarship, any unused money can be withdrawn without paying any penalties (just taxes)

There are also ways for your child to earn money besides doing chores. I will be doing another post on this subject, so stay tunned.

Teaching your kids early the skills they will need in life, and most of the time the ones that aren't taught in schools, will really give your kids a head start in life. Most teens and young adults leaving home or leaving for college for the first time have a hard time managing money and life skills because their parents or teachers didn't show them how the real world works. Giving your child chores and responcibilities at a young age will teach them that they can be an active part of their household and community.

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