JACKSONVILLE, Fla. — Between birthday cards, allowance and maybe even the tooth fairy, some kids are quite fortunate to have some money coming in.
And of course, you want your kids to be kids and use some of their money for the things they want. But, saving money and getting them to understand how it could make them more money down the road is a valuable life lesson, according to financial expert and fiduciary Kendal Cann.
"Saving money, it's really nothing without time," Cann told First Coast News. "And when have you had more time than when you're a kid?”
Cann owns Privileged Planning Incorporated. Her company is a financial firm that focuses on wealth management.
And if you want some wealth to manage, you might as well start young.
"Saving money is a snowball effect, it involves momentum," Cann said.
Depending on the account you choose, your kids will be earning interest. The money made on the interest you earn is called compounding interest.
"That is the art of making money on your money, and the earlier you start, the better off you will be," Cann said.
Cann says there is absolutely nothing wrong with a high yield savings account of CD product that most banks and credit unions will offer.
However, if you want to finesse the savings game a bit and save some money for your kids with a few more tax advantages, Cann has a few accounts she prefers.
"My favorite account, and I have two I am telling people about right now, and the first is an UTMA," Cann said.
UTMA stands for Uniform Transfers to Minors Act. You can deposit for your child, the money earns interest and is tax advantaged. Essentially, the money would be taxed at the child's own tax bracket, which in most cases would be minimal.
That tax protection is up to a certain limit though, because the IRS is going to get theirs.
When the minor reaches adulthood, 18 in some states, 21 in others, the account is transferred to them.
Cann also says 529 accounts are good to save for college education, but that's nothing new. However, she says changes to 529s in 2024 have made her like the accounts even more.
"Unused funds in a 529 after your child graduates college can be rolled over into an individual retirement account without and proof of income," Cann said.
She says starting an IRA for your child when they graduate college with any of those leftover funds could be massive for them down the road.
"If you start when the average person graduates college at 21, that could be a million dollars at retirement age," Cann said. "All that without them having to worry all about their 401k, that would be a huge burden off your child right there."
She added that there are plenty of things you can set up right now just by walking in your bank or credit union.
"There is nothing wrong with a high yield savings account, we're in the first time in a decade [where] you can make money essentially on nothing."
And on top of earning cash, it could also set up a lifetime habit of saving as well.