My 7 and 9 year old have been accumulating money since they were born, although they do not know it. They are required to save some of each week's allowance and the excess goes into a checking account when it will not fit in their bank any more. More substantially, as they have been given gifts over the years by friends and family, the money has gone into a balanced fund in a custodial account for each kid and the eldest has a portfolio of almost $10k. We show them the money in the checking account from time to time because we want them to understand that the money they deposit is not gone and is still theirs. They do not know about the custodial accounts. When should I show them that? My eldest is very interested in money and will want to start investing soon to learn about it.
David Owen wrote "The First National Bank of Dad" with the various ideas he used on his kids. He had a chapter about teaching them to invest in mutual funds-- one kid wanted to pick stocks but the other was apathetic and just used index funds. He started them pretty early-- I think it was age 9 or 10.
NFCU will probably let you open a checking account for your nine-year-old, and they might even hand over an ATM card. Our kid loved whipping out her checkbook to pay for Scholastic book fair purchases and lunch passes. There were some tears over balancing her account by hand, but then she upgraded to Quicken and was much happier. It helped her get ready for her first credit card at age 13. The best thing about the checking account is that we went almost cashless-- I transferred her weekly allowance electronically so that it wouldn't burn a hole in her pocket.
You could divide the custodial funds into "checking account" and "investing account" and show them how to handle both. You could decree that the investing account is to learn how to manage money, build up funds for college, or even save a little for retirement. People used to give you money to run Wall Street investments, and now you could do the same for your daughter-- only for her own benefit and maybe an occasional profit-sharing dividend.
We adopted Owen's idea of the "Kid 401(k)".
It started on our daughter's 8th birthday. Along with the raise in her allowance, we told her that a second boost of her allowance was being set aside in a kid's version of a grownup's 401(k). We said that we'd add parental matching funds to her contributions so that when she turned 16 years old she'd have [Dr. Evil voice]
FIVE THOUSAND DOLLARS [/Evil] to buy herself a car. She couldn't tap the funds until then (no 401(k) loans or early withdrawals) and she'd have to wait eight years (which to her at that age was an entire lifetime). I created a spreadsheet graph that showed the age-vs-$$ curve and where she was on it. As she got older we showed her how the numbers went into the formulas and compounded.
Interestingly, this 401(k) idea squelched the "gimmes". We were sitting around the parking lot at taekwondo one day and the 12-year-olds started talking about the cars they were going to get "soon". As they described their Hummers & Escalades, one parent asked their kid "How are you going to pay for this?" When the kids started pleading or asking about McDonald's jobs, our daughter said "Well, I have a Kid 401(k), and when I turn 16 years old it'll have $5000 in it and I'll just
buy my own car."
That stopped the kids cold. It stopped a lot of the parents, too.
Of course once she was convinced that the 401(k) was really legit, we started the discussion about how much it costs to insure and maintain a car. She was horrified to watch gas prices go up. We showed her how crowded the high-school parking lot was and how college made you pay for parking. Then I explained how she could use bicycles & public transportation while re-investing her $5000 in a CD ladder. I figured that at age 16 she'd either buy an island bomb or hold on to the money until she found something at college.
She blindsided us parents: when she got her learner's permit, she asked if she could pool her Kid 401(k) with us to buy a used car. She said that when she went to college (on the Mainland) then we'd buy her out of her share and she'd put the money back into her car fund. We haggled hard on car washes, maintenance, and damage deductions. She even offered to run errands.
And that's how we bought our used Prius. She owned a third of it (our most expensive car purchase ever). My spouse assessed $250 damage for a parking-lot ding but otherwise our daughter took great care of that car. She did all of our grocery shopping for almost two years. When she left for college we bought her out of her share (minus the damage). She set up $4500 in CDs in her credit union account and she used the remaining $250 to buy herself a nice bicycle.
As your kids reach the right age, you could also start paying them for various jobs. When they have enough earned income then you could open a Roth IRA-- I think Vanguard or TRP will still let you subcustody a minor's Roth IRA:
http://the-military-guide.com/2012/03/26/starting-your-kids-roth-ira/I am hoping that Nords will find this thread soon. I bet he'll have some great advice.
Brewer's already given me great investing advice, and he taught me advanced analysis techniques as well as recommending McMillan's options textbook!
