Kids and Finance: What to do with their money

I will post some of these non-related HR questions from time to time in order to educate as many readers as I can. A reader asked a great financial based question. Her sons were given $100 for Christmas and she's trying to find the best way for them to invest their money. I sought the advice of Matthew Brock, owner of Divergent Planning, LLC (http://www.divergentplanning.com). This is what Matt had to say.


"A child will often receive a cash gift from a relative at birthdays or special holidays. For the parent, this means deciding whether to let the child spend it now or set the money aside for the child’s future. The first thing the parent should do is determine if the money is to be saved for future use by the child or for college specifically. Many college accounts (like the popular 529 plan) can only be used for college. Other accounts (such as savings accounts or UTMAs/UGMAs) can be used for any expense related to the child. If the amount is small, it may not be worth opening a 529 or college savings account since many of these have minimums. Also, for any account, if there is no plan to save more than the initial smaller deposit be sure account fees won’t eat away at the principal.

Depending on the age of the child and the dollar amount of the gift, you may want to consider opening up a free checking account. This can be used as a financial education tool to help them get a good foundation of the basics of money and budgeting. Allow the child to spend and track the money in their account online.

I believe the most important part in deciding what to do with the child’s cash gift is to allow them to be involved in the process. This doesn’t necessarily mean let the child decide what to do with the money on their own. It does mean that you should explain to the child where the money is going and why. Its important to educate our children on money decisions early on."

Matthew Brock is the owner of Divergent Planning, LLC a fee-based financial planning firm catering to younger generations. He can help with a Strategy for Today and Tomorrow. To reach Matt, go to http://www.divergentplanning.com/



As always, Prioritize, Set boundaries and Live!