As the saying goes: Time is money. Time is the most precious resource we have available. And it makes a huge difference in financial investments.
The later someone starts investing in life, the more they’ll have to sock away each month to live comfortably well into their golden years.
So, doesn’t it make sense to start investing as early as possible?
When it comes to your loved ones, you can give them an incredible head start by investing in them long before they’re of age to invest for themselves.
When you invest for kids, you’re setting them up for the financial freedom required to live life to its fullest. Plus, if you do it right, you can help grow their financial literacy along the way.
Read on for a breakdown of all the amazing benefits you’re gifting to your loved one when you invest in them, plus an easy-to-follow breakdown of how to get started.
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Creating an investment plan for a young child might seem premature, but there’s actually no better time to get started.
Thanks to compound interest, money set aside for a child at a young age will be far more impactful than waiting to start saving until they need the money.
Here are 4 huge benefits of creating an investment plan right now:
Today’s financial literacy rate is troubling, to say the least.
A recent study found that only about one-third of Americans can answer four out of five basic financial literacy questions. The numbers are even less promising when you look at those in the 18–34 age group.
Financial literacy is a topic not often taught in schools, meaning it has to happen at home or on a one-on-one level with a knowledgeable adult. There’s no reason to wait until a child reaches adulthood and moves out on their own to start teaching them about money.
Doing so places them at a disadvantage early on, one that could be hard to recover from.
Starting the investing conversation early can make sure a child is prepared when it’s time to leave home. Lessons in financial literacy can help children immensely by giving them a strong knowledgebase that will help them live comfortably and safely as adults.
There’s no doubt that the children of today will face significant expenses throughout their lives, including funding their education, buying a home, possibly raising children, and hopefully retiring comfortably.
Because of compound interest, the amount of time their money is in the market makes a huge difference in whether they’ll have enough later on.
If you were to start saving for college when a child was 17, it would seem insurmountable (and likely would be impossible for most families). But by preparing early, you can have 18 years to help a child save for their goals.
But that’s just one example. Maybe the child in your life doesn’t want to go to college. Maybe they want to travel the world or start a business right out of high school. By providing them with financial investment gifts, starting at a young age, you’ll be able to make those dreams a reality too.
It’s not just parents that want to help a child grow and succeed in life. Friends, family, godparents, and others may also want the opportunity to contribute to a child’s life and happiness.
Between birthdays, holidays, graduations, and more, there’s no shortage of events for a child to receive gifts.
By starting the conversation about investing early and sharing that plan with other family and friends, you give everyone who loves a child a chance at contributing to their financial future in a meaningful way.
This is an ideal opportunity to teach a child they have a whole community supporting them and rooting for them to succeed in life.
A recent study found that 77% of people feel anxious about their financial situation and more than half feel that finances control their lives.
The same study found that when people are stressed about money, they’re less likely to save, budget, and plan ahead financially. Which can lead to even more financial stress. It’s a vicious cycle, and not one you want your loved one to get stuck in.
Investing for a child you love at a young age doesn’t guarantee they won’t experience financial stress later.
But, between increased financial literacy and the presence of money in their investment account when they reach adulthood, you’re greatly improving their chances at a stress-free life (at least when it comes to money).
Brokerage firms generally require someone to be at least 18 years of age to open a brokerage account.
But there are plenty of ways to start investing for kids, whether you’re saving for college, retirement, or just trying to fund their hopes and dreams.
There are a variety of accounts to choose from, but we’re going to focus our attention on UGMA (Uniform Gifts to Minors Act) accounts.
An UGMA account is a custodial account that allows a parent, guardian, or other loved one to open an account, contribute funds, and invest for a minor.
Money in a UGMA can be used for investing in individual stocks, bonds, mutual funds, index funds, exchange-traded funds, and more. The adult who opens the account can make contributions and direct investment decisions until the minor turns 18 or 21 (depending on the state).
While the adult who opens the account manages it, the money in the account legally belongs to the child whose name is on it.
The account owner can’t remove or redirect the funds. Then, when the child reaches adulthood, the account and the money in it becomes theirs.
So why a UGMA account?
And with a UGMA account like EarlyBird, you can contribute to your child’s financial future while giving friends and family the opportunity to do the same.
The parent controlling the account can easily select one of five fixed ETF investment portfolios. Then they can customize it further by selecting value-based funds representing causes they and the child care about, such as saving the environment or driving diversity.
Plus, family members who contribute can leave heartfelt memories for the child to view and cherish as they age.
A 529 plan is a tax-advantaged college savings account that allows parents and loved ones to start saving for a child’s education.
When you contribute to a 529 plan, your dollars get invested and grow tax-free. When the time comes, you can use the money to pay for qualified education expenses without paying taxes on distributions.
The money from 529 plans can be used for a wide array of education expenses, including tuition for college or K-12 education, books and school supplies, fees, room and board, and more.
So why open a UGMA account over a 529 plan? Let’s talk about some of the advantages of UGMA accounts over 529 plans:
An individual retirement account (IRA) is a tax-advantaged retirement savings vehicle.
Anyone with earned income can contribute to an IRA, and the account owner can invest the contributions how they like. For those under the age of 18, a custodial IRA allows parents to control it until a child reaches adulthood.
IRAs are a great tool to use to save for retirement, but they aren’t a substitute for a UGMA account. Here’s why:
Ready to start investing for a child that you love? Because of compound interest, there’s no better time to start than now.
If the child you want to invest in doesn’t already have an UGMA account you can easily contribute to (like EarlyBird), here’s how to go about setting one up and funding it:
When investing in the future of a child that you love, EarlyBird is an innovative option that is unique in the financial world.
With EarlyBird, you have one central account that anyone can contribute to. That means parents, grandparents, godparents, friends, and anyone else in a child’s life can contribute to one collective fund that can make a true difference in that child’s future.
What’s more, EarlyBird gives you the option of adding a video message to your contribution gift, creating a lasting emotional statement that can be carried well into the future.
There’s never been a better time to start investing for your child than right now. Getting started earlier helps to set your child up better for their future financial goals.
Investing for a child early will help to instill skills and values they’ll carry with them forever. In a time where financial literacy is on the decline, getting children excited about finances today can help ensure their lifelong financial success.
If you’re ready to start investing for the children in your life, download the EarlyBird app today.
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