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When you’re a teenager, there are plenty of things you’re going to be thinking about that are going to affect your life in the near future that goes beyond making sure that you have money for your own financial independence when you’re an adult. Knowing when and how to start investing as a teenager is an important initial step in your life’s financial journey.
Such as your education, your friendship circles, and what you’re going to be doing on the weekends.
But it’s important to take some time out of your busy week to figure out how you can set yourself up for financial independence whilst you’re still young so that you don’t have to worry about this sort of thing when it’s time to fly the nest.
There are plenty of ways you can go about this, beyond making sure you get a part-time job as soon as possible.
Whether you’re a teenager reading this or you’re an adult with a child, and you’re looking for financial advice, then this article will certainly have value in it for you.
If you’re already making money that you want to invest, that’s great, if you’re looking for money making ideas, please check out my YouTube video below.
A custodial account is an account where the child owns the assets contained within but the parent (who sets it up) has control of the investment decision and any withdrawals which might be made.
Withdrawals and capital gains tax liabilities are taxed in the child’s name, rather than the parents which is an advantage over the similar sort of accounts.
The minimum account balances and interest rates will vary by company, though anyone can contribute to the custodial account and as of 2021, this is currently capped at around $15k.
Once the minor reaches adulthood, the account ownership is transferred to the child and they can then decide when and how they use the money which has been accumulated over the years since the account was first made.
Just like any money that sat in a bank account, it is almost doing nothing (except when it brings in a small interest fee year over year) unless you make this money work for you. That means having the funds in diversified investments. To learn more about diversification please check out my YouTube video below.
What this mean is, you should be making sure that the money in the custodial account is properly diversified, whether that’s in stocks, bonds or mutual funds.
Not only will you help with their financial gains but you can also use this time to teach your child about investing; what it is and how to do it safely.
This way, they can actually see what is going into their own financial future in a practical way.
Having the funds and the knowledge of their portfolio is critical for them when they get older and take over the investments.
A custodial IRA works the same as a regular custodial account as we’ve spoken about previously, although this is one that is focused on making sure your child has retirement funds ready for them.
Again, you’re going to want to make this money work for you too, so it is worth investing throughout their childhood and encouraging them to do so when they are an adult so that they can further develop on these funds.
It may also seem like a silly time to think about a child’s retirement before they’ve even started working in the modern world, but you really can’t leave these things too late.
The sooner the better, especially when it comes to money.
Setting up and keeping track of these types of accounts can be a pain, especially if you want to keep your child up to date with how things are going to make sure they’re as involved as possible.
Though thankfully, there is an app Acorns Early, which allows you to set up these accounts and have them all stitched together in one place so that you and your child can keep track of their funds whenever you feel like it.
Not only is it a place to track your investments but you can also get plenty of information about investing and different types of accounts you can open up for your child; so you can both learn and develop your understanding of the financial world much, much more.
As we said previously, there are many tax benefits to do something like this too, since your child will be limited what they need to pay (if anything) which will make it a much more pleasant time for you too.
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We’ve mentioned a few times how taxes work with custodial accounts alike, but we briefly want to bring you this information to your attention again so that you can fully understand why custodial accounts are more than worth it…
These accounts, when opened for a child, make the child themselves reliable for any tax which is needed to be paid.
This is a benefit for you both as the child will pay almost no tax over the years of owning the account.
This makes things 10x better than if you were just to have their future financial funds sit in an account which you owned.
Opening an account for your child which could help ease their financial pain when they reach adulthood should be at the very top of your priority list after reading this.
Not only should you put money into their account, but you should also make this money work for you; in terms of investing it into stocks, bonds and mutual funds – as well as anything else which could help grow the money tree you’ve planted into their account.
Whether you’re a teenager or a parent, in this article there is plenty of accountable advice that you can act on right now to help shape up a positive financial future.
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