Helping Kids Get ROL With Their Holiday Cash
The holidays often bring kids a little extra cash- and a great opportunity to teach lifelong money habits. By helping your children divide their holiday money into different buckets, you can show them how thoughtful choices today create confidence and purpose for tomorrow. It is a simple framework that turns generosity and goal-setting into habits that grow along with them through out their life!
1. The Spend Bucket
Start by explaining to your child that there are three ways that they can use their money: spending on themselves, saving (or investing) for the future, or helping other people. (Save your speech on taxes, utilities, and the costs of parenting for another day).
Now, establish a "bucket" for each use.
Collect your child's holiday cash, and anything rattling around in their piggy bank, and determine what percentage of your child's money you're going to put into each bucket going forward.
Younger kids who want that new toy or need a new pair of soccer cleats might allocate a little more into the Spend bucket, especially around the holidays. But you can also talk to your older kids about the value of spending their money on experiences rather than more stuff. Will they really play that new game, or wear that new sweatshirt before they grow out of it? Or would they get a little more bang for their buck buying tickets to a concert or a sports eve
2. The Saving/Investing Bucket
The earlier kids understand how to put their money to work for them, the earlier they'll be able to harness the power of compounding interest.
But that lesson might be a bit too much for younger kids. For now, just telling them that part of their money is going "in the bank" so that it can "get bigger" might be enough.
For older kids who already have a savings account, you might consider opening a custodial brokerage account and introduce how investing works. Depending on the account type, you might be able to buy a few shares of big-name companies that your child will recognize so that they can easily track their stock’s ups and downs. You could also split this bucket between a new brokerage account and a new savings account so that they can compare the performance of each over time.
Teenagers might consider making contributions to a 529 account that will help pay for their education. And if they're earning W-2 income from a part-time job or working as a self-employed babysitter or landscaper, you can open a custodial Roth IRA as well.
3. The Giving Bucket
Learning to look beyond their own wants and needs can be one of the most challenging lessons for children to learn. Modeling generosity by making giving a part of your own financial plan and talking to your kids about your family's values can be a strong place to start.
As they grow older and become more aware of the world around them, point your kids towards charities and nonprofits that might align with their interests. Athletes might like to contribute to teams that support underprivileged kids. Bookworms might enjoy supporting literacy programs. Animals lovers might want to give to your local shelter. Eventually, kids might even want to supplement their giving with volunteer shifts.
Showing your kids that there’s more to managing money than just buying stuff will be a valuable lesson. It will also empower them to use their money to improve their lives and their communities.
And if you want to adjust your own “buckets” as you prepare for a New Year, schedule a meeting and let’s start planning.