Raising Financially Responsible Children

As a parent you want your kids to become healthy adults functioning in society and a big part of that is learning how to handle money. As kids start to ask questions about money, how do you approach these conversations? Should you pay your child an allowance? Should you have a savings or investment account for your child? What about saving for college?

Check out Part 1 of our Kids and Money Series to hear our advisors weigh in on these questions and more.

This content is provided by Windward Private Wealth Management Inc. (“Windward” or the “Firm”) for informational purposes only. Investing involves the risk of loss and investors should be prepared to bear potential losses. No portion of this blog is to be construed as a solicitation to buy or sell a security or the provision of personalized investment, tax or legal advice. Certain information contained in the individual blog posts will be derived from sources that Windward believes to be reliable; however, the Firm does not guarantee the accuracy or timeliness of such information and assumes no liability for any resulting damages.

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Transcript

0:00

Hello and welcome to part one of our webinar series about kids and money. In this three part series we’ll be talking about raising financially responsible children.

0:09

We’ll start the series by talking about the little ones, newborn up until middle school age.

0:16

I’m Brandy Ward an Associate Wealth Manager for Windward and I’m joined by Darrell Tierney, a Certified Public Accountant and Certified Financial Planner.

0:24

Along with Drew Osborne, a Certified Financial Planner, to talk about this topic.

0:32

Financial literacy is so important to the success of our youth, but because money is considered a taboo subject, it’s education is largely left to parents and grandparents to discuss and teach their children.

0:46

There’s no right way to talk about money with our kids, but discussing, but by not discussing it at all, that’s certainly not doing our younger generations any favors. So I’ll start today’s conversation by posing a question to Darrell.

1:00

As kids start to ask questions about money, how do you approach these conversations?

1:06

Well, you know, I think one of the things that I would say is, I wouldn’t necessarily wait until the kids ask. Don’t be on defense beyond on offense.

1:18

Start the conversations, and, it totally is an age dependent thing.

1:25

So, you know, I think a great starting spot with the little little ones when they’re old enough to start learning to count is use money.

1:35  It’s always that easy to identify that penny because it’s the brown one, but money identification. Counting because it’s easy.

1:45

You know, we, I was with my five year old kindergarten grandson last week, and we were talking about counting and, you know, he’s great.

1:55

It 8 plus 8 is 16 or whatever, but it’s good to say, well, and $8, plus $8 is $16, you know, get it.

2:03

Get it so that it’s more tangible.

2:05

But, but I think it’s really important, all the way through, to just kind of have an ongoing conversation. Different things are appropriate at different times, but I think just an ongoing discussion.

2:19

I think, Darrell, you’re exactly right that it’s just going to change over time. But you don’t want to have to wait.

2:25

But all of it really comes back to this point, that my goal as a parent is, I want my kids to become healthy adults functioning in society and a big part of that is learning how to handle money.

2:41

And to take a bigger step back is to say, how do I handle money? Do I handle money well? Because we know that a lot of people don’t.

2:52

I know in a lot of areas of my life, I’m still learning how to do it more and more effectively.

2:57

So, no part of this of teaching financial literacy is holding a mirror up to ourselves.

3:04

And saying, OK where, can I be proud of how my family does money?

3:11

Where do we still have weaknesses? And I see all the time now the areas where, as my kids, you know, are between second grade and eighth grade, the areas where I get most frustrated with them about money are a lot of times the areas, really, that I’m like frustrated with myself.

3:31

So there’s like this isn’t, you know, supposed to be a psychological webinar, but it’s very much an opportunity to be reflective personally.

3:45

As well as, what are we trying to do to help our kids become well rounded human beings, too?

3:52

Well and you know, it’s I think it’s not just with money, but with everything. The kids are learning more by watching you than they ever do by what you tell them. So, you know, decide like maybe the place to start is with yourself, am I good with money? And yeah, now. Because they’re going to watch how you approach it.

4:14

And they’re going to watch, you know, uh, I remember I know we’d be in a drugstore and every time we’d, you know, we’d want some money for some gum or something, my dad would reach in his pocket and there would be this groan to give it, you know, and he’d hate to give it. That, oh, yeah, this is bad, you know, this is not good.

4:35

Yeah.

4:37

My child, my oldest is five and every, you know, she’s at the age, every time we go to the store, she wants something. And so I’m starting to try to talk to her about wants versus needs.

4:49

You know, we don’t, we want gum every time at the store, we don’t need it, and she disagrees. But that’s important to learn that distinction.

5:01

And then also talking to her about being not like bluntly, truthful, but the answer to the question of, no, we can’t afford that, isn’t true. You know, I can absolutely afford to buy her the gum. So by saying no, we can’t afford that or that’s kinda the go to answer for a lot of parents, that’s not necessarily accurate. It would be better to talk to them about why we don’t want to buy the gum every single time we go to the store. Wants versus needs, a little delayed gratification.

5:34

Yeah, I think that’s a great point.

5:36

And those conversations look different when they’re five versus when they’re 14.

5:42

Because I keep trying to be reflective for myself personally. And then I want my kids to think about in general, we live in a very consumeristic society and the American way is what we see and what we know all around us and the world hasn’t always operated as consumer- hungry, as it is right now.

6:10

But I’ve tried to help myself and I want to help them say, hey, what really is making you happy? Does buying another Lego set bring as much joy if you just turn around and want to buy another one tomorrow? You know, it’s kind of it’s the gum principle, but for different purposes.

6:31

And I think you’re exactly right, Darrell. You know that you said earlier that they will pick up a lot more of it, based on what they see, based on what we say.

6:43

Um, and the conversations that my wife and I have about money, are those conversations frustrated conversations? Are they exasperated?

6:54

Are they partnered together?

7:00

But the law, of you know what is it, you know, diminished returns that, you know, buying stuff over and over isn’t going to make us as happy over time.

7:12

Man, that’s an important lesson that I’m wanting my kids to see, because I want to continue to learn it. And not have to rely on stuff.

7:21

Well, and, you know, and I think, interestingly, at the very beginning, Brandy mentioned that, that no money is kind of a taboo subject. And, yeah, I think we need to, you know, just shatter that from the outside, from the outside.

7:39

There, there’s an element of privacy about your finance, your personal finances.

7:45

But, I think what happens is that gets expanded to something that it’s totally not right. It says any discussions about money are taboo.

7:54

You know, and it’s not. Especially, with when it comes to your, your kids.

7:59

I mean, again, you can’t wait until they ask, you just need to push the topic and realize there’s age appropriate ways, you know, all the way through.

8:12

I mean, the only way they’re ever going to learn is by us telling them and talking to them about these things because, you know, kind of like I said, it’s not a subject that’s really hammered home in school like other topics are.

When your comment about consumerism, reminded me in this book I was reading, it talks about this Mom makes it a game with her kids when they sit down and watch TV to watch the commercials and say, what are they playing on here to make you want this product?

8:46

And it has started to become a game almost for their family and same with like, if they’re scrolling Instagram and trying to see products pushed on them to say, why are they doing this? What are they, you know, playing on me to make me want this product?

9:03

I think that’s really…

9:05

Yeah, so that’s a great job of trying to create awareness. Self-awareness. I don’t know how this phrase has become a mantra for me.

9:15

But I often say, when watching product placement, marketing, in everything I say, “Life is a shameless promotion”.

9:23

Just feels like, everything is being promoted, and it’s, like, sometimes, like subtle, but a lot of times, it’s not at all subtle. And I really want that, I say that a lot, to my kids.

Oh, I was going to add one other point. Darrell, you were talking about privacy and the thing that I feel like I’m trying to balance is, I really want to engage their curiosity, but their brains are growing and developing, and they’re not mature yet, so everything isn’t always on the table for me. I, they sometimes, are like, how much money do you make?

9:58

And I at this point, have just said it’s not helpful for you to have to know that, because I don’t want that to create issues with friends, with other family. So not everything is an open book.

10:13

And deciding when to answer and went to not, I think is just part of the learning process, B=but you’re right, Darrell, that the more open we can be, the better, but to me that has not necessarily meant everything, is an open book. Brandy, earlier you were talking about, asking, why being important, I’d love to hear you share more about that.

10:33

Yeah, so, um, well, a couple of things, first, to your comment about how much do you make, and then not addressing that.

10:41

One approach is to first, talk about how much things cost.

10:45

How much does it cost to live in this house to, you know, buy groceries and things like that? So, kids get an idea of what is needed to make ends meet before they ever start learning how much someone makes.

10:56

Um, but, like, Drew said, so, the question of, how much money do you make? A good question to respond with to start is, Why do you ask?

11:06

And you want to do an uplifting so that the kids aren’t discouraged by asking. But, one, it gives the kid, you get to understand why they’re asking a little more. Sometimes, they have deep thoughts behind those questions and other times, it’s purely surface level, just curious.

11:23

And when it is one of those deep questions, it gives you an extra ten seconds to think of your answer before you have to start.

11:30

So, I like responding with, Well, why do you ask? When they ask good financial questions.

11:38

To me, another part of that, you know, really, this is all about teaching and answering questions is part of the teaching process. I think a whole other, a whole other aspect of it is letting your kids have experience with all the aspects of financial life in terms of spending and spending foolishly.

 

12:10

But counseling them, you know, so, so, I, and this may be my inherent bias, but I always wanted the kids to have an opportunity to make mistakes. You know, you’re not, you’re not gonna keep them from doing crazy things.

12:25

And if you’re, if you’re too controlling about what they do, then it’s going to be a problem, because once that control is gone, they’re gonna go crazy.

12:35

And so I think the important thing is let them make mistakes, but talk to them all the way through, and that that’s kind of a natural lead into the whole allowance topic.

12:44

Yeah.

12:45

And one just final point on that is I would rather let them make mistakes when the stakes are low, absolutely, it’s buying a really ridiculous carnival toys that clearly is junk and is going to fall apart.

13:03

And is overpriced, I would rather, have the pain but I love that point about asking them questions or walking them through it, but letting them do it.

13:13

Than when they’re 24 and never understood credit and all of a sudden have a $10000 credit card bill, the stakes are a lot higher.

13:26

Right, right.

13:28

Yeah, so exactly like Darrell said, it’s a great lead into allowance. You know, whether it’s allowance or birthday, many kids are gonna come across money, in their 18 years, under your roof.

13:39

And so what do we do with this, that money and how we approach that is kind of our next segment here. And so we’ll first start with allowance.

13:52

Darrell, Drew, what are your thoughts on that?

13:55

Well, I have some really strong thoughts on this and I see this a lot.

14:00

I think a lot of parents tie allowance too strictly to the earning money aspect.

14:09

So, you know, you think about what are you trying to teach a kid with an allowance?

14:15

You’re trying to you’re trying to teach them to earn money, you know, and so that’s that’s important. You’re trying to teach them to live below their means. You know, not spend everything they have.  Delay gratification.

14:30

You know, are there good things you can do with this money? Whether it’s charitable things that are better for society, all those things.

14:38

So, there’s, there’s so many lessons and my, my experience is a lot of a lot of parents I frequently see, parents get so focused on the earnings part of it that, that they, they really don’t, don’t broaden it and and, you know, I felt my, my experience is, there’s a little bit of fear that, hey, you know, the, this kids got to earn this money. I’m not just gonna give them part of our family money.

15:09

Well, the truth is, you’re providing a place for them to live. You’re providing them health care. You’re providing them things.

15:16

Providing them money is not going to be any different than you know them growing up and saying, well, gosh, you’ve provided all this stuff to me. Somebody needs to provide that for me.

15:25

I think it’s perfectly fine.

15:28

I think you need to do both. You need to tie it in earnings but I think you need to give them enough money that they can learn to use it. And that may all come from earnings, that maybe is you get this part of this money is just because you’re in the family, and, you know, that’s kind of a personal bias I bring into it.

15:43

But yeah. And I think my bias is very much aligned with that, Darrell, and it’ll be fun to hear you and maybe this conversation or maybe future conversation with bigger kids because I think you’ve taken that to some other levels that I’m really interested in, but we’ve kind of said, chores are a part of the family, you will work, you’re not getting paid, you need to clean. Right, right. And so, not everything is tied to money because you’re right we’re trying to do so many things as a parent and as a grandparent, you’re trying to teach them how to handle money well, but you also want to teach them a good work ethic.

16:20

But those things don’t have to be totally tied together and so I totally agree.

16:24

We do, allowance is, when you turn five years old, maybe it started at five for the first, I don’t know. For the third it started at five.

16:33

But they get 40 cents times their age, times the number of weeks in the month, at the beginning of the month.

16:44

So, for an eight year old, he’s getting about 13 bucks a month, for the oldest who’s 14, he’s getting about 23 bucks a month. So it’s not a ton of money.

16:55

But we hope it’s enough money, that it lets them be kind of strategic about it.

17:00

Part of what our family has valued is to say, you have to take 10% of that, and you have to, what we call invest it.

17:09

And for for that, for us, means you need to put it towards your college fund. I know we’ll talk about college later.

17:15

And then, we’re saying, you have to take 10% of that, and you have to put it in a bucket that’s going to be given away, because our family philosophy is, all money is not ours.

17:29

We say, it’s all things are God’s and our job is to take care of it and to share it.

17:35

And so, that’s just a value that we have. And so, I say that every single time they’re older now, and they let me still do it.

17:43

But, for younger kids, you know, they, they know that mantra and I hope that’s something that’s going to be pressed into their hearts and minds for a really long time. But so, especially while they’re young, there’s awesome piggy banks out there that have four slots, that you can separate that out as.

18:01

And, so the slots are invest, and then donate, and then the other two are save and spend. And we let them take the, that remaining 80%, and they can decide how much goes into save, how much goes into spend. The less I say about it, the better, even though I want to. I have opinions, but I want them to figure that out and their personality shines in that.

18:23

Some of them, will want to spend it on a lot of gum.

18:27

Others are gonna think, Ooh, a cool toy in the future I want to save towards.

18:32

So with three kids now, it’s a heck of a lot more expensive than it used to be every quarter. Now, I realize it’s like 175 bucks a quarter.

18:43

It’s like you know, but I feel like it’s totally worth it.

18:48

They’re getting to learn real lessons with it and now that the bigger kids want more money than that, that’s where they get to say oh, I can go babysit and mow a lawn and shovel driveways and try to earn more so hopefully we’re trying to do some of them.

19:07

You know, what, one of the lessons, that, that, if we work backwards that I see, I have this conversation with our clients all the time.

19:15

And I think that time to start learning it is, is when you’re, when you’re a child.

19:20

Is, I’m a firm believer, that every financial asset that you own has a purpose. That, and you need to name what that purpose is. So, it might be for Mom and Dad.

19:34

It’s like, this IRA is my retirement fund.

19:39

This is the kids’ college fund. This is our emergency fund.

19:43

What I hate to say and I wouldn’t even use this word necessarily, with your kids, I wouldn’t say, this is for savings, this is your savings account, you know, generic savings, like, and especially when it comes to kids.

19:57

For what, what’s it mean? You just saved to save?

20:00

No.

20:01

So, what I think is really important is to have something, and it could be, as Drew said, this is money that you’re putting away for your college. This is what you’re putting away for a car.

20:15

This is what you’re putting away to buy something and you know, or this could even be a rainy day fund for something that, you know, but it’s for an emergency or an opportunity that comes up, but I would be really specific and teach them that principle of every, you know, money has a purpose and have very specific purposes.

20:34

Because I think it it is one of the big problems we get into is this stuff gets so intangible it’s hard for people to deal with and now I have the conversation all the time with Mom and Dad, this is my savings.

20:47

What’s it for? And so how do we invest that? We don’t know, we don’t know what it’s for. You know, I’ve totally screwed up with that.

20:55

We’ll talk about bank accounts in a minute and had a bank account have a bank account for the older two kids.

21:01

And it was totally like one of them being like, wait, this is my money.

21:06

I thought I can use it for anything. And it’s like oh, I didn’t set clear expectations. We didn’t communicate very well on this.

21:14

I paid the price. Brandy, what have you done and tell us about how the pictures tie in.

21:20

So this is Collins’s my daughter. So the first little picture here is when she got chicks.

21:27

She was like three years old. And then this is her getting the eggs out of our chicken coupe now.

21:33

So, she sells eggs from her chickens for $2/dozen and some of her grandparents pay a little more than $2/dozen for her eggs. But so, she loves this because it’s a way she earn some money and right now, I say earn, it’s one way she gets some money.  Right now, we just keep that cash in her bedroom. And just like, you know, we’ve talked about, we keep it separate kind of buckets. We do keep cash because she’s so little, she doesn’t understand a bank account. If we put it in a bank, she’d just see numbers, she wouldn’t get it. So she loves those dollar bills stacking up.

22:12

But we love this because as she gets older, it’ll give her a little more opportunity or it’ll give us teaching opportunities. Eventually, we’ll probably charge her for chicken food. Right now she’s just enjoying 100% profit margin.

22:27

So eventually, she’ll have to pay for chicken food and, um, once she’s to that point, we’ll also talk about, you know, profit margin on this chicken deal. But that’s probably going to be a pretty depressing conversation, wo we’ll save that. It’s tough to be a farmer.

22:45

Yeah, but it’s been great and, you know, it kind of ties into allowance a little bit in that she does have to go out and get the eggs.

22:54

I mean, we’re not doing that for her so it, it does have some responsibility aspect to it.

23:01

You know and we like it. It’s gone good.

23:04

And Brandy, I love the idea that you keep it where she can see it in her room. And it’s cash. And it’s because, it’s kind of what I talked about earlier.

23:14

It is so intangible and something very similar, I think there’s an appropriate time.

23:23

I don’t know if you’ll be able to do this.

23:25

You know, when she is old enough, but like, you walk into the bank and you give them your money, and, you know, you start teaching them that, go to the ATM and get the money out, and as they’re old enough to explain it.

23:36

Then, one of the things that, that I just want to get in here, because I think is especially as Drew.

23:42

This goes a little bit against our philosophy, but I think it would tie in with kids Drews’age one of the things that I think is a really good idea, is to set aside some money, um, for them, or with their money and buy individual stocks, and let them pick the company.

24:05

And the reason I say that is, uh, we fight this with Mom and Dad all the time.

24:12

Again, things get so intangible, we tend to buy broadly diversified portfolios of mutual funds and exchange traded funds stuff and mom and dad lose sight that what you’re doing is actually buying a piece of the company.

24:28

And so even though we’re not big fans of mom and dad owning individual stocks, on the contrary when it comes to young kids, I think that’s fantastic to say, let’s look at, here’s some companies. You know, here’s, here’s, does Disney, or McDonald’s, or Coca Cola or whatever it is.

24:47

And have them see it and understand, you know, there there’s things that go a long way. And that just opens up all kinds of lessons.

24:56

But it comes back to this idea of getting tangible, and, like, what are we really, you’re buying a piece of an enterprise, and that’s what we’re doing for, for, for Mom and Dad all the time, And a lot of mistakes get made because they don’t get that, that, that Mom and Dad don’t get that. They do foolish things with markets and things like that. And I think you can start it.

25:17

You know, middle school is a great age to let them start understanding that process.

25:24

And the only, that’s so interesting. I never saw that growing up in what, the one thing that sticks in my head is I’m more interested in helping each of my kids try to pick out one company and buy a really small amount to even buy fractional shares of stuff now. I mean, it’s just amazing.

25:45

The era we live in, so, you know, even though some company stocks are really expensive, you can maybe limit that to a relatively small amount.

25:53

I like that idea more than I’ve just read a couple of articles recently on just how the imaginary like stock market game, you know where, if it’s a lesson in school where you see how much you can make in either a semester or a week or a month, just almost how damaging that can be, because short-term isn’t what we’re thinking about the market for anyway. I would rather own one fraction of a company stock for 10 years with my kid, just so that they can see, and try to learn the bigger lesson of, this isn’t short-term. So, and that’s exactly why I think that’s such an important lesson. I totally agree with that.

26:28

And that’s a great way to teach it.

26:30

It’s like, guess what, it’s down. Oh, that’s too bad, you know, but what are we going to do? Nothing, we’re going to watch, it will be back up, you know, and use all those things, such great lessons and most of us are left to figure that out, our on our own as an adult and, you know, I just think it’s a really good way of doing it.

26:53

So, I’d say, how about you? Go ahead.

26:59

That’s such a great kind of segue into what do we do with our childrens’ money?

27:05

You know, we’ve talked about allowance and maybe smaller term amounts, but sometimes those gifts of maybe birthday money or other things can end up being a little bigger. So what should parents or grandparents start to do?

27:22

Once we’re talking about more than $20?

27:28

I’ll start.

27:31

We have received Christmas money, birthday money and especially while they’re little, that money has just gone straight into the kids’ 529 college savings accounts that we’ve had. And while they’re young and they’re having other things, we’ve just had the philosophy like, they don’t need more stuff, they have a lot of stuff.

27:55

How do we teach this model of not being totally consumer minded?

28:01

So that is one piece, but the kids are older now.

28:04

They see that money and understand, whoa, that has my name on it and that’s a decent amount of money, what the deal?

28:14

And, I mean, I feel like it’s an ongoing negotiation that we have.

28:18

But we often have part of money, go to the 529 accounts now, the college savings, and then part of the money, we let them have, but we opened up savings accounts for the kids.

28:33

Um, when they got to about 10 years old. So our third doesn’t have a savings account yet.

28:40

And Darrell, your point earlier, it makes so much sense of being like, all right. Sometimes they have cash for their own spending but we have wanted that savings account to be, a, hey, this is the place for you to start thinking about saving towards a car.

28:58

Yeah.

28:59

And part of it is, what are you going to do? Are you going to pay for their car? Are they going to pay for their car as it can be a partnership? You know.

29:07

I think we’ll probably get into that in our next webinar, but that is how we have treated gifts. It’s often been a split between college savings, and then, partly, for them, personally, and partly, towards their savings account. But those amounts have been, you know, modest.

29:24

I don’t know, maybe we’ll circle back to it, but we have some clients who grandparents have given significant gifts to grandkids.

29:32

And what those people have done is they’ve also opened up just a brokerage account for that kid.

29:42

No, called an UGMA or UTMA account. So we’ll circle back to that, but I’m curious what Darrell, Brandy, you all have done.

29:49

Yeah.

29:50

I really I would just kind of go back to what what I’d mentioned earlier is, you know, have every dollar have a name on it so that it’s? Hey, this is we’re going to call this college money, OK? So where does that go? That’s going to go into the 529 account.

30:07

When it comes to savings, I think it’s great, you know, have your kids have a ledger and break the savings account down and say, OK, I’ve got, you know X number of dollars in here, this much is my car fund, the rest is for this. Or whatever it is. You know, save up for something, you know, some new video game or whatever.

30:26

But, but, no, it’s just a great teaching tool. Always come back to, what’s it for, what’s it for?

30:34

Kind of like, that’s a good idea, for adults.

30:37

Yeah, exactly, and for every dollar to have a purpose. That’s yeah.

30:42

That’s a concept that we talk about a lot with our clients, you know?

30:46

It’s not just a huge savings account, kind of breaking down what, what all of those dollars are for. For me, this answer is a little easier because my kids are really young.

30:58

So when we do get, like, birthday amounts that are more than $20, those don’t see my kids’ hands. And so for now, I’m just putting those in, I actually put them in a joint account, and I’ve invested that money for the future.

31:16

I don’t know what it’s for yet, other than it’s for once they’re above 15, 16 , I don’t know if it will be car or college, we will see. I have some time to think about the philosophy there.

31:29

But yeah, that’s what we’re doing for now.

31:33

And love hearing what you guys are doing so that I know how to approach it as I get a little older.

31:39

Um, so circling back UTMA accounts, a lot of opinions or questions about these. They’re accounts that are for the child and then the parent or grandparent is the custodian of the account until they reach the age of majority.

31:58

Drew, what’s your thoughts on these?

32:02

I haven’t opened those for my own kids yet, partly just because it’s felt like any money that we’ve wanted to have invested for us is money that we want to earmark towards college right now.

32:17

And, in general, I think it’s a good idea of, no matter your age, to say, I don’t want to invest money unless I’m viewing it as long term, at least five years. Realistically, ideally, something like 10 years.

32:31

So, especially for my bigger kids, if it’s, car money, they’re too close that I don’t want that in the market.

32:41

And so, I think UTMA accounts can make a lot of sense, especially in situations where families are getting, you know, significant gifts.

32:53

I’ll let you all speak more to it.

32:56

One of the dangers about UTMA accounts is that once they become the age of majority, that account is legally supposed to switch to their name, and that they should have full access to it. And they no longer, the guardian really shouldn’t be a part of it anymore.

33:12

And parents, guardian, whoever that is, is going to lose control of it and if they don’t think that’s the appropriate thing to do, too bad, so sad. It’s the kids’ money.

33:26

And actually, we should probably clarify, UTMA, is uniform transfer to minor account and UGMA is uniform gift a minor account, we throw around these acronyms.

33:36

So that’s specifically what they are, and I couldn’t agree more where what I don’t like is we occasionally, we’ll see people using these accounts for college savings. And not only do they not have some of the tax advantages, but they have a huge disadvantage.

33:57

College funds typically are a larger part of the money designated for a kid. I mean, that ends up being a large part of it. And it’s usually started when they’re very young and build up.

34:08

And you know, we’ll see, you know, a quarter of a million dollars in one of these transfer to minor accounts that is going to be dropped on a very, very young person.

34:20

And when a kid is 5 or 6 years old, you just don’t know, you know, you may be doing ultimate harm.

34:27

Yes. As far as being responsible with your child.

34:32

So I’m not a big fan of those for college saving purposes.

34:36

I think it’s fantastic for you know, gifts to, you know, annual birthday gifts and Christmas gifts and things like that, that’s great.

It’s not gonna you’re not gonna ruin a kid’s life, but but when it comes to larger amounts, and if, for example, if there’s large amounts that come by way of inheritance or gifts, from grandparents or things like that.

35:00

Man, if mom and dad can intercede and say, hey, here’s a great way to structure this, you don’t want to do damage to the kids.

35:07

I mean and it may not, but it might. And the problem is you’re trying to make a call before you, really, before your kids have mature and what the effect is.

35:19

Yeah because I mean, you know, when I think of Collins, my hope and goal is that when she reaches the age of majority, she has learned how to handle a large sum of money like that. But, if she hasn’t, the consequences won’t be good.

35:35

When she just has a large account like that handed to her.

35:38

Um.

35:42

I lost my train of thought there, but, yeah, well, and the other thing I was just going to add is that, most, um, UTMA accounts, they could create dividends and interests and possibly capital gains.

35:59

If those amounts of income, or under, about $2000 a year then a tax return isn’t needed to be filed for the kid.

36:08

But, if it, if it becomes substantial money, the tax implications get a little bit messy. You get into things called kiddie tax, and they have to file returns, but they may have to pay rates near the parents’ rates.

36:20

And so, you just want to be strategic and know all what you’re getting into, and we help our clients think through that.

36:28

My point, I was thinking, was UTMAs definitely have some good qualities to them.

36:34

And, I think, being clear with communication with your children, if they do have an UTMA account is really important.

36:40

Talking to them about, it’s not just the large sum of cash that’s going to be dumped on you.

36:46

And setting up this expectation, I don’t know, maybe it’s a down payment for their first house and talk to them, like it’s the down payment for their first house, not money they can just spend on anything clear and trying to get that mindset in their heads so that they don’t think of it as just money to spend, I think is really important.

37:09

And, you know, and again, back to that point of  teaching them this is what the purpose of this money is for.

37:15

You know?

37:16

And if it can be, hey, we’re saving up for your first house, know, drive that in so they think about it. That’s what this now counts for now, and hopefully you’ve done a good job of that all the way along so that that message sticks.

37:29

Maybe house prices won’t be insane when kids do that. But maybe that’s a real strategy now based on housing.

37:39

Yes, um, OK, so, last kind of topic we have, here is, when do I save for college? This is a question we get a lot from new parents and grandparents that are clients, so, you can see this is Drew’s son, Oakley, crying at his I believe his preschool graduation.

38:04

And, uh, know, this is a happy occasion but, you know, Oakley could end up looking just like this if he heads off to college with no plan for how to pay for it. Exactly.

38:15

Exactly. That was a couple of years ago. So, Oakley is much mor mature now, as a second grader, I think he could look back at this and smile.

38:24

Yeah, so when, when to save for college? Obviously, the sooner, the better!  Right? We know that the more time that you have to save, you’re going to reap the benefit of hopefully being able to take advantage of compounding interest to help have some investment growth along the way.

38:43

But also, if you save when they’re young, you don’t have to put away as much every single month than if you wait 5, 10, 15 years. And we know it’s expensive, and we know there are questions about what college is going to look like in the future.

39:00

And there’s so many unknowns of, could they get scholarships? Or could college be free in the future? We just, we just don’t know.

39:10

But what I know is, we have worked with a lot of clients and I have yet to find a client who has regretted what they have saved towards their college savings and specifically, in a 529 College Savings Plan.

39:27

I’ve yet to find a client who said, that was a bad idea. And I almost feel like sometimes people use it as an excuse to not save for college by using some of the same arguments. Well, what if they get scholarships?

39:44

Well, what it if they don’t go to college?

39:48

Those are not unreasonable questions, but they all can be alleviated and there aren’t drastically terrible results if you save and you don’t spend at all.

39:59

That’s my rant.

40:02

It’s a good rant. Yeah, yeah. I, I totally agree, Drew.

40:06

In fact, you know, the exercise used to be, you know, back when Windward started, and I think this is becoming less and less applicable, but it used to be, do you want to send your kid to public school or private school? How many years do you want to provide blah, blah, blah. And then, you can look it up on a table and build in inflation, and then let it go, You know, when you do a calculation, start putting in this, this amount, away, per month.

40:35

I feel like that’s less relevant today because of the uncertainty you talked about. It is going to be more uncertain.

40:42

So, doesn’t mean you shouldn’t have a college fund. I think it is probably more important to have it.

40:48

But what you want to make sure is that college fund has some flexibility and you’re putting it away proportionately. And the earlier you start the better.

40:57

You know, Drew’s Dad, Steve, who is a senior wealth manager, often says, just start. You know, doesn’t matter how much. I don’t care if it’s, you know, $50 a month.

41:09

Just start, because because it’s a long timeframe over time, you’re going to have more flexibility, you’re going to make more at different times in your life and different things.

41:21

But if you’re moving in that direction, it’s just helpful.

41:24

And so, the sooner you start, the better.

41:27

In fact, I’d say when a kid is born, it’s a good time to start no matter how small. Don’t worry about that.

41:35

Yeah, I love that.  Because you’re really setting up a habit of saving for their college, because I mean, parents, you know, young parents are at a time where you’re getting pulled into a lot of directions, financially. A lot of parents, house payments, have student loans, then they’re saving for college for your kids when you might still be paying for your own. You’re getting pulled in a lot of directions, but by starting to save something, even if it’s $25 bucks a month, you’re just setting that habit so that as they get older and you know, you inevitably get raises and pay things off, you can adjust those savings amounts to say, well, gosh, I gotta raise, and instead of $25 bucks a month, we can do $50 now.

42:20

And then just slowly bump up year after year.

42:23

Um, but you just, you gotta start. That’s, that’s the best way to go.

42:29

And there’s no right answer about how much it has to be, we have clients who really philosophically say, hey, we want our kids to have skin in the game.

42:37

We have some clients who say, hey, we expect our kids to pay for most or all of college, and there’s nothing wrong with that, but if you at all think you want to help, and I would encourage clients to probably try to help because it’s so expensive. I think it can be a really good lesson for a student to have some amount of student loan to learn how to manage that, and how to deal with it, and to take their own school really seriously, but it is brutal if they have hundreds of thousands of dollars of debt, out of college, it’s more than a house loan.

43:12

And I don’t know, just quick point on that.

43:16

Well, and one of the things that probably one of our most painful conversations we have, ARR.

43:24

No, this is my: put your own oxygen mask first conversation.

43:30

Put on your own oxygen mask first.

43:32

We frequently will see people who have got high school aged kids.

43:38

They are way behind the curve on funding retirement, their way behind the curve on funding kids’ college and, know, from our standpoint, the prudent thing to do is take care of your retirement first. You have to prioritize it.

43:56

The earlier you start, the less of an issue that is, and may not be an issue at all, But if you’re late, if you’re late in the game, there are lots of answers for paying for college.

44:08

There is no Retirement Fairy.

44:10

If you don’t have enough, you got a problem and you can end up being a liability to your kids so you really have to go through the computations and have a serious plan, if you’re late and emotionally it’s just unbelievably difficult. You know, most of us love our kids very much. You want to take care of them and you want to get them off to a good start. And you might not be in financial shape.

44:37

You know, retirement is a real liability that’s coming and you can’t, you know, put your head in the sand and pretend like it’s not and, and you can really end up in bad financial shape.

44:49

So, probably one of the more important things we do.

44:55

Um, switching gears, but what should a grandparent do? You know, we have lots of clients who are grandparents want to help chip in for their grandchildren’s college savings.

45:10

What does the answer to that look like?

45:12

Yeah, it’s probably going to depend on how much you’re talkin’.

45:16

Um, obviously, there’s hopefully some type of conversation happening.

45:22

We say this with clients that have kids and have, their parents, or ultimately the kids grandparents. They’re like, I think my grandparents are going to help them as well.

45:32

It’d be kinda good to know if y’all are on the same page expectation wise, about how this is happening.

45:38

And, you know, what’s nice, about 529 college savings accounts are that they have, they can, anybody can be the owner. So a grandparent could be an owner, or a parent could be an owner.

45:51

Any tax benefit, which is, you know, you if you make a contribution in, you know, a state, that’s where the tax benefit happens on the state income taxes, but the owner of the account is who gets the benefit.

46:06

So sometimes it just depends on what the grandparent is thinking.

46:09

If they’re thinking about giving a Christmas gift towards college education, a holiday gift for a birthday gift of, you know, say, $100 or a couple hundred dollars, it then becomes a question of, hey, grandparent, do you want to have that 529 account and deal with kind of the headache of it? You’ll get a little tax benefit of it.

46:28

But if the if the parents have a 529 account, maybe you just want to add that money to their accounts. That’s what we see a lot of times is that maybe a grandparent just adds money to the 529 account that the parent has.

46:47

But grandparent, you can have an account to, especially if you’re doing significant amounts of money, because ultimately you get to control that.

46:55

You can change the beneficiaries. You can decide if it really goes to them or not.

47:02

Those are a couple of considerations I think about.

47:05

You know, I totally agree with your comment Drew, that it’s better if Mom and Dad and grandparents or grandparents want to help. It’s better to have a conversation.

47:17

But, what we know is, this is the way these money issues play out in a family, so, grandparents are worried mom and dad aren’t putting enough away for college, and they don’t want them to count on it, so they don’t want them to know what they’re doing. And so, no gift back, this opening comment that Brandy made about it being taboo and we’ve got all these hang ups.

47:37

And you know you gotta really examine that, and say, Am I really, you know, is the goal here to help Mom and Dad, am I trying to help the grant can, or what you know? And how can I be helpful?

47:51

A lot of stuff gets played out in, in this scenario.

47:56

Yeah, boy, those are great comments.

47:58

I think just to kind of sum it up, grandparents have the option to either give the funds to an account that the parent is the custodian of, or they could open up their own 529 account for the benefit of their grandchild.

48:13

And the decision there was in line, who gets the tax benefit and how much control you want over the account.

48:21

Um.

48:24

And the limits are very high in terms of how much can be put in.

48:29

It is per child, so no. But unless you’re really funding exorbitant amounts of money, they typically don’t even come into play for what we see.

48:45

All right. Well, that’s all the time we have for today and keep an eye out for parts 2 and 3 of our kids and money series. Where we will talk about preteens and teens, and young adults and many. If you have any questions about what you heard today, or would like to hear more about how, when, where it can help you, please reach out. My e-mail is on the screen. We’d love to hear from you. Thank you.

49:11

Thanks.

0:00

Hello and welcome to part one of our webinar series about kids and money. In this three part series we’ll be talking about raising financially responsible children.

0:09

We’ll start the series by talking about the little ones, newborn up until middle school age.

0:16

I’m Brandy Ward an Associate Wealth Manager for Windward and I’m joined by Darrell Tierney, a Certified Public Accountant and Certified Financial Planner.

0:24

Along with Drew Osborne, a Certified Financial Planner, to talk about this topic.

0:32

Financial literacy is so important to the success of our youth, but because money is considered a taboo subject, it’s education is largely left to parents and grandparents to discuss and teach their children.

0:46

There’s no right way to talk about money with our kids, but discussing, but by not discussing it at all, that’s certainly not doing our younger generations any favors. So I’ll start today’s conversation by posing a question to Darrell.

1:00

As kids start to ask questions about money, how do you approach these conversations?

1:06

Well, you know, I think one of the things that I would say is, I wouldn’t necessarily wait until the kids ask. Don’t be on defense beyond on offense.

1:18

Start the conversations, and, it totally is an age dependent thing.

1:25

So, you know, I think a great starting spot with the little little ones when they’re old enough to start learning to count is use money.

1:35  It’s always that easy to identify that penny because it’s the brown one, but money identification. Counting because it’s easy.

1:45

You know, we, I was with my five year old kindergarten grandson last week, and we were talking about counting and, you know, he’s great.

1:55

It 8 plus 8 is 16 or whatever, but it’s good to say, well, and $8, plus $8 is $16, you know, get it.

2:03

Get it so that it’s more tangible.

2:05

But, but I think it’s really important, all the way through, to just kind of have an ongoing conversation. Different things are appropriate at different times, but I think just an ongoing discussion.

2:19

I think, Darrell, you’re exactly right that it’s just going to change over time. But you don’t want to have to wait.

2:25

But all of it really comes back to this point, that my goal as a parent is, I want my kids to become healthy adults functioning in society and a big part of that is learning how to handle money.

2:41

And to take a bigger step back is to say, how do I handle money? Do I handle money well? Because we know that a lot of people don’t.

2:52

I know in a lot of areas of my life, I’m still learning how to do it more and more effectively.

2:57

So, no part of this of teaching financial literacy is holding a mirror up to ourselves.

3:04

And saying, OK where, can I be proud of how my family does money?

3:11

Where do we still have weaknesses? And I see all the time now the areas where, as my kids, you know, are between second grade and eighth grade, the areas where I get most frustrated with them about money are a lot of times the areas, really, that I’m like frustrated with myself.

3:31

So there’s like this isn’t, you know, supposed to be a psychological webinar, but it’s very much an opportunity to be reflective personally.

3:45

As well as, what are we trying to do to help our kids become well rounded human beings, too?

3:52

Well and you know, it’s I think it’s not just with money, but with everything. The kids are learning more by watching you than they ever do by what you tell them. So, you know, decide like maybe the place to start is with yourself, am I good with money? And yeah, now. Because they’re going to watch how you approach it.

4:14

And they’re going to watch, you know, uh, I remember I know we’d be in a drugstore and every time we’d, you know, we’d want some money for some gum or something, my dad would reach in his pocket and there would be this groan to give it, you know, and he’d hate to give it. That, oh, yeah, this is bad, you know, this is not good.

4:35

Yeah.

4:37

My child, my oldest is five and every, you know, she’s at the age, every time we go to the store, she wants something. And so I’m starting to try to talk to her about wants versus needs.

4:49

You know, we don’t, we want gum every time at the store, we don’t need it, and she disagrees. But that’s important to learn that distinction.

5:01

And then also talking to her about being not like bluntly, truthful, but the answer to the question of, no, we can’t afford that, isn’t true. You know, I can absolutely afford to buy her the gum. So by saying no, we can’t afford that or that’s kinda the go to answer for a lot of parents, that’s not necessarily accurate. It would be better to talk to them about why we don’t want to buy the gum every single time we go to the store. Wants versus needs, a little delayed gratification.

5:34

Yeah, I think that’s a great point.

5:36

And those conversations look different when they’re five versus when they’re 14.

5:42

Because I keep trying to be reflective for myself personally. And then I want my kids to think about in general, we live in a very consumeristic society and the American way is what we see and what we know all around us and the world hasn’t always operated as consumer- hungry, as it is right now.

6:10

But I’ve tried to help myself and I want to help them say, hey, what really is making you happy? Does buying another Lego set bring as much joy if you just turn around and want to buy another one tomorrow? You know, it’s kind of it’s the gum principle, but for different purposes.

6:31

And I think you’re exactly right, Darrell. You know that you said earlier that they will pick up a lot more of it, based on what they see, based on what we say.

6:43

Um, and the conversations that my wife and I have about money, are those conversations frustrated conversations? Are they exasperated?

6:54

Are they partnered together?

7:00

But the law, of you know what is it, you know, diminished returns that, you know, buying stuff over and over isn’t going to make us as happy over time.

7:12

Man, that’s an important lesson that I’m wanting my kids to see, because I want to continue to learn it. And not have to rely on stuff.

7:21

Well, and, you know, and I think, interestingly, at the very beginning, Brandy mentioned that, that no money is kind of a taboo subject. And, yeah, I think we need to, you know, just shatter that from the outside, from the outside.

7:39

There, there’s an element of privacy about your finance, your personal finances.

7:45

But, I think what happens is that gets expanded to something that it’s totally not right. It says any discussions about money are taboo.

7:54

You know, and it’s not. Especially, with when it comes to your, your kids.

7:59

I mean, again, you can’t wait until they ask, you just need to push the topic and realize there’s age appropriate ways, you know, all the way through.

8:12

I mean, the only way they’re ever going to learn is by us telling them and talking to them about these things because, you know, kind of like I said, it’s not a subject that’s really hammered home in school like other topics are.

When your comment about consumerism, reminded me in this book I was reading, it talks about this Mom makes it a game with her kids when they sit down and watch TV to watch the commercials and say, what are they playing on here to make you want this product?

8:46

And it has started to become a game almost for their family and same with like, if they’re scrolling Instagram and trying to see products pushed on them to say, why are they doing this? What are they, you know, playing on me to make me want this product?

9:03

I think that’s really…

9:05

Yeah, so that’s a great job of trying to create awareness. Self-awareness. I don’t know how this phrase has become a mantra for me.

9:15

But I often say, when watching product placement, marketing, in everything I say, “Life is a shameless promotion”.

9:23

Just feels like, everything is being promoted, and it’s, like, sometimes, like subtle, but a lot of times, it’s not at all subtle. And I really want that, I say that a lot, to my kids.

Oh, I was going to add one other point. Darrell, you were talking about privacy and the thing that I feel like I’m trying to balance is, I really want to engage their curiosity, but their brains are growing and developing, and they’re not mature yet, so everything isn’t always on the table for me. I, they sometimes, are like, how much money do you make?

9:58

And I at this point, have just said it’s not helpful for you to have to know that, because I don’t want that to create issues with friends, with other family. So not everything is an open book.

10:13

And deciding when to answer and went to not, I think is just part of the learning process, B=but you’re right, Darrell, that the more open we can be, the better, but to me that has not necessarily meant everything, is an open book. Brandy, earlier you were talking about, asking, why being important, I’d love to hear you share more about that.

10:33

Yeah, so, um, well, a couple of things, first, to your comment about how much do you make, and then not addressing that.

10:41

One approach is to first, talk about how much things cost.

10:45

How much does it cost to live in this house to, you know, buy groceries and things like that? So, kids get an idea of what is needed to make ends meet before they ever start learning how much someone makes.

10:56

Um, but, like, Drew said, so, the question of, how much money do you make? A good question to respond with to start is, Why do you ask?

11:06

And you want to do an uplifting so that the kids aren’t discouraged by asking. But, one, it gives the kid, you get to understand why they’re asking a little more. Sometimes, they have deep thoughts behind those questions and other times, it’s purely surface level, just curious.

11:23

And when it is one of those deep questions, it gives you an extra ten seconds to think of your answer before you have to start.

11:30

So, I like responding with, Well, why do you ask? When they ask good financial questions.

11:38

To me, another part of that, you know, really, this is all about teaching and answering questions is part of the teaching process. I think a whole other, a whole other aspect of it is letting your kids have experience with all the aspects of financial life in terms of spending and spending foolishly.

 

12:10

But counseling them, you know, so, so, I, and this may be my inherent bias, but I always wanted the kids to have an opportunity to make mistakes. You know, you’re not, you’re not gonna keep them from doing crazy things.

12:25

And if you’re, if you’re too controlling about what they do, then it’s going to be a problem, because once that control is gone, they’re gonna go crazy.

12:35

And so I think the important thing is let them make mistakes, but talk to them all the way through, and that that’s kind of a natural lead into the whole allowance topic.

12:44

Yeah.

12:45

And one just final point on that is I would rather let them make mistakes when the stakes are low, absolutely, it’s buying a really ridiculous carnival toys that clearly is junk and is going to fall apart.

13:03

And is overpriced, I would rather, have the pain but I love that point about asking them questions or walking them through it, but letting them do it.

13:13

Than when they’re 24 and never understood credit and all of a sudden have a $10000 credit card bill, the stakes are a lot higher.

13:26

Right, right.

13:28

Yeah, so exactly like Darrell said, it’s a great lead into allowance. You know, whether it’s allowance or birthday, many kids are gonna come across money, in their 18 years, under your roof.

13:39

And so what do we do with this, that money and how we approach that is kind of our next segment here. And so we’ll first start with allowance.

13:52

Darrell, Drew, what are your thoughts on that?

13:55

Well, I have some really strong thoughts on this and I see this a lot.

14:00

I think a lot of parents tie allowance too strictly to the earning money aspect.

14:09

So, you know, you think about what are you trying to teach a kid with an allowance?

14:15

You’re trying to you’re trying to teach them to earn money, you know, and so that’s that’s important. You’re trying to teach them to live below their means. You know, not spend everything they have.  Delay gratification.

14:30

You know, are there good things you can do with this money? Whether it’s charitable things that are better for society, all those things.

14:38

So, there’s, there’s so many lessons and my, my experience is a lot of a lot of parents I frequently see, parents get so focused on the earnings part of it that, that they, they really don’t, don’t broaden it and and, you know, I felt my, my experience is, there’s a little bit of fear that, hey, you know, the, this kids got to earn this money. I’m not just gonna give them part of our family money.

15:09

Well, the truth is, you’re providing a place for them to live. You’re providing them health care. You’re providing them things.

15:16

Providing them money is not going to be any different than you know them growing up and saying, well, gosh, you’ve provided all this stuff to me. Somebody needs to provide that for me.

15:25

I think it’s perfectly fine.

15:28

I think you need to do both. You need to tie it in earnings but I think you need to give them enough money that they can learn to use it. And that may all come from earnings, that maybe is you get this part of this money is just because you’re in the family, and, you know, that’s kind of a personal bias I bring into it.

15:43

But yeah. And I think my bias is very much aligned with that, Darrell, and it’ll be fun to hear you and maybe this conversation or maybe future conversation with bigger kids because I think you’ve taken that to some other levels that I’m really interested in, but we’ve kind of said, chores are a part of the family, you will work, you’re not getting paid, you need to clean. Right, right. And so, not everything is tied to money because you’re right we’re trying to do so many things as a parent and as a grandparent, you’re trying to teach them how to handle money well, but you also want to teach them a good work ethic.

16:20

But those things don’t have to be totally tied together and so I totally agree.

16:24

We do, allowance is, when you turn five years old, maybe it started at five for the first, I don’t know. For the third it started at five.

16:33

But they get 40 cents times their age, times the number of weeks in the month, at the beginning of the month.

16:44

So, for an eight year old, he’s getting about 13 bucks a month, for the oldest who’s 14, he’s getting about 23 bucks a month. So it’s not a ton of money.

16:55

But we hope it’s enough money, that it lets them be kind of strategic about it.

17:00

Part of what our family has valued is to say, you have to take 10% of that, and you have to, what we call invest it.

17:09

And for for that, for us, means you need to put it towards your college fund. I know we’ll talk about college later.

17:15

And then, we’re saying, you have to take 10% of that, and you have to put it in a bucket that’s going to be given away, because our family philosophy is, all money is not ours.

17:29

We say, it’s all things are God’s and our job is to take care of it and to share it.

17:35

And so, that’s just a value that we have. And so, I say that every single time they’re older now, and they let me still do it.

17:43

But, for younger kids, you know, they, they know that mantra and I hope that’s something that’s going to be pressed into their hearts and minds for a really long time. But so, especially while they’re young, there’s awesome piggy banks out there that have four slots, that you can separate that out as.

18:01

And, so the slots are invest, and then donate, and then the other two are save and spend. And we let them take the, that remaining 80%, and they can decide how much goes into save, how much goes into spend. The less I say about it, the better, even though I want to. I have opinions, but I want them to figure that out and their personality shines in that.

18:23

Some of them, will want to spend it on a lot of gum.

18:27

Others are gonna think, Ooh, a cool toy in the future I want to save towards.

18:32

So with three kids now, it’s a heck of a lot more expensive than it used to be every quarter. Now, I realize it’s like 175 bucks a quarter.

18:43

It’s like you know, but I feel like it’s totally worth it.

18:48

They’re getting to learn real lessons with it and now that the bigger kids want more money than that, that’s where they get to say oh, I can go babysit and mow a lawn and shovel driveways and try to earn more so hopefully we’re trying to do some of them.

19:07

You know, what, one of the lessons, that, that, if we work backwards that I see, I have this conversation with our clients all the time.

19:15

And I think that time to start learning it is, is when you’re, when you’re a child.

19:20

Is, I’m a firm believer, that every financial asset that you own has a purpose. That, and you need to name what that purpose is. So, it might be for Mom and Dad.

19:34

It’s like, this IRA is my retirement fund.

19:39

This is the kids’ college fund. This is our emergency fund.

19:43

What I hate to say and I wouldn’t even use this word necessarily, with your kids, I wouldn’t say, this is for savings, this is your savings account, you know, generic savings, like, and especially when it comes to kids.

19:57

For what, what’s it mean? You just saved to save?

20:00

No.

20:01

So, what I think is really important is to have something, and it could be, as Drew said, this is money that you’re putting away for your college. This is what you’re putting away for a car.

20:15

This is what you’re putting away to buy something and you know, or this could even be a rainy day fund for something that, you know, but it’s for an emergency or an opportunity that comes up, but I would be really specific and teach them that principle of every, you know, money has a purpose and have very specific purposes.

20:34

Because I think it it is one of the big problems we get into is this stuff gets so intangible it’s hard for people to deal with and now I have the conversation all the time with Mom and Dad, this is my savings.

20:47

What’s it for? And so how do we invest that? We don’t know, we don’t know what it’s for. You know, I’ve totally screwed up with that.

20:55

We’ll talk about bank accounts in a minute and had a bank account have a bank account for the older two kids.

21:01

And it was totally like one of them being like, wait, this is my money.

21:06

I thought I can use it for anything. And it’s like oh, I didn’t set clear expectations. We didn’t communicate very well on this.

21:14

I paid the price. Brandy, what have you done and tell us about how the pictures tie in.

21:20

So this is Collins’s my daughter. So the first little picture here is when she got chicks.

21:27

She was like three years old. And then this is her getting the eggs out of our chicken coupe now.

21:33

So, she sells eggs from her chickens for $2/dozen and some of her grandparents pay a little more than $2/dozen for her eggs. But so, she loves this because it’s a way she earn some money and right now, I say earn, it’s one way she gets some money.  Right now, we just keep that cash in her bedroom. And just like, you know, we’ve talked about, we keep it separate kind of buckets. We do keep cash because she’s so little, she doesn’t understand a bank account. If we put it in a bank, she’d just see numbers, she wouldn’t get it. So she loves those dollar bills stacking up.

22:12

But we love this because as she gets older, it’ll give her a little more opportunity or it’ll give us teaching opportunities. Eventually, we’ll probably charge her for chicken food. Right now she’s just enjoying 100% profit margin.

22:27

So eventually, she’ll have to pay for chicken food and, um, once she’s to that point, we’ll also talk about, you know, profit margin on this chicken deal. But that’s probably going to be a pretty depressing conversation, wo we’ll save that. It’s tough to be a farmer.

22:45

Yeah, but it’s been great and, you know, it kind of ties into allowance a little bit in that she does have to go out and get the eggs.

22:54

I mean, we’re not doing that for her so it, it does have some responsibility aspect to it.

23:01

You know and we like it. It’s gone good.

23:04

And Brandy, I love the idea that you keep it where she can see it in her room. And it’s cash. And it’s because, it’s kind of what I talked about earlier.

23:14

It is so intangible and something very similar, I think there’s an appropriate time.

23:23

I don’t know if you’ll be able to do this.

23:25

You know, when she is old enough, but like, you walk into the bank and you give them your money, and, you know, you start teaching them that, go to the ATM and get the money out, and as they’re old enough to explain it.

23:36

Then, one of the things that, that I just want to get in here, because I think is especially as Drew.

23:42

This goes a little bit against our philosophy, but I think it would tie in with kids Drews’age one of the things that I think is a really good idea, is to set aside some money, um, for them, or with their money and buy individual stocks, and let them pick the company.

24:05

And the reason I say that is, uh, we fight this with Mom and Dad all the time.

24:12

Again, things get so intangible, we tend to buy broadly diversified portfolios of mutual funds and exchange traded funds stuff and mom and dad lose sight that what you’re doing is actually buying a piece of the company.

24:28

And so even though we’re not big fans of mom and dad owning individual stocks, on the contrary when it comes to young kids, I think that’s fantastic to say, let’s look at, here’s some companies. You know, here’s, here’s, does Disney, or McDonald’s, or Coca Cola or whatever it is.

24:47

And have them see it and understand, you know, there there’s things that go a long way. And that just opens up all kinds of lessons.

24:56

But it comes back to this idea of getting tangible, and, like, what are we really, you’re buying a piece of an enterprise, and that’s what we’re doing for, for, for Mom and Dad all the time, And a lot of mistakes get made because they don’t get that, that, that Mom and Dad don’t get that. They do foolish things with markets and things like that. And I think you can start it.

25:17

You know, middle school is a great age to let them start understanding that process.

25:24

And the only, that’s so interesting. I never saw that growing up in what, the one thing that sticks in my head is I’m more interested in helping each of my kids try to pick out one company and buy a really small amount to even buy fractional shares of stuff now. I mean, it’s just amazing.

25:45

The era we live in, so, you know, even though some company stocks are really expensive, you can maybe limit that to a relatively small amount.

25:53

I like that idea more than I’ve just read a couple of articles recently on just how the imaginary like stock market game, you know where, if it’s a lesson in school where you see how much you can make in either a semester or a week or a month, just almost how damaging that can be, because short-term isn’t what we’re thinking about the market for anyway. I would rather own one fraction of a company stock for 10 years with my kid, just so that they can see, and try to learn the bigger lesson of, this isn’t short-term. So, and that’s exactly why I think that’s such an important lesson. I totally agree with that.

26:28

And that’s a great way to teach it.

26:30

It’s like, guess what, it’s down. Oh, that’s too bad, you know, but what are we going to do? Nothing, we’re going to watch, it will be back up, you know, and use all those things, such great lessons and most of us are left to figure that out, our on our own as an adult and, you know, I just think it’s a really good way of doing it.

26:53

So, I’d say, how about you? Go ahead.

26:59

That’s such a great kind of segue into what do we do with our childrens’ money?

27:05

You know, we’ve talked about allowance and maybe smaller term amounts, but sometimes those gifts of maybe birthday money or other things can end up being a little bigger. So what should parents or grandparents start to do?

27:22

Once we’re talking about more than $20?

27:28

I’ll start.

27:31

We have received Christmas money, birthday money and especially while they’re little, that money has just gone straight into the kids’ 529 college savings accounts that we’ve had. And while they’re young and they’re having other things, we’ve just had the philosophy like, they don’t need more stuff, they have a lot of stuff.

27:55

How do we teach this model of not being totally consumer minded?

28:01

So that is one piece, but the kids are older now.

28:04

They see that money and understand, whoa, that has my name on it and that’s a decent amount of money, what the deal?

28:14

And, I mean, I feel like it’s an ongoing negotiation that we have.

28:18

But we often have part of money, go to the 529 accounts now, the college savings, and then part of the money, we let them have, but we opened up savings accounts for the kids.

28:33

Um, when they got to about 10 years old. So our third doesn’t have a savings account yet.

28:40

And Darrell, your point earlier, it makes so much sense of being like, all right. Sometimes they have cash for their own spending but we have wanted that savings account to be, a, hey, this is the place for you to start thinking about saving towards a car.

28:58

Yeah.

28:59

And part of it is, what are you going to do? Are you going to pay for their car? Are they going to pay for their car as it can be a partnership? You know.

29:07

I think we’ll probably get into that in our next webinar, but that is how we have treated gifts. It’s often been a split between college savings, and then, partly, for them, personally, and partly, towards their savings account. But those amounts have been, you know, modest.

29:24

I don’t know, maybe we’ll circle back to it, but we have some clients who grandparents have given significant gifts to grandkids.

29:32

And what those people have done is they’ve also opened up just a brokerage account for that kid.

29:42

No, called an UGMA or UTMA account. So we’ll circle back to that, but I’m curious what Darrell, Brandy, you all have done.

29:49

Yeah.

29:50

I really I would just kind of go back to what what I’d mentioned earlier is, you know, have every dollar have a name on it so that it’s? Hey, this is we’re going to call this college money, OK? So where does that go? That’s going to go into the 529 account.

30:07

When it comes to savings, I think it’s great, you know, have your kids have a ledger and break the savings account down and say, OK, I’ve got, you know X number of dollars in here, this much is my car fund, the rest is for this. Or whatever it is. You know, save up for something, you know, some new video game or whatever.

30:26

But, but, no, it’s just a great teaching tool. Always come back to, what’s it for, what’s it for?

30:34

Kind of like, that’s a good idea, for adults.

30:37

Yeah, exactly, and for every dollar to have a purpose. That’s yeah.

30:42

That’s a concept that we talk about a lot with our clients, you know?

30:46

It’s not just a huge savings account, kind of breaking down what, what all of those dollars are for. For me, this answer is a little easier because my kids are really young.

30:58

So when we do get, like, birthday amounts that are more than $20, those don’t see my kids’ hands. And so for now, I’m just putting those in, I actually put them in a joint account, and I’ve invested that money for the future.

31:16

I don’t know what it’s for yet, other than it’s for once they’re above 15, 16 , I don’t know if it will be car or college, we will see. I have some time to think about the philosophy there.

31:29

But yeah, that’s what we’re doing for now.

31:33

And love hearing what you guys are doing so that I know how to approach it as I get a little older.

31:39

Um, so circling back UTMA accounts, a lot of opinions or questions about these. They’re accounts that are for the child and then the parent or grandparent is the custodian of the account until they reach the age of majority.

31:58

Drew, what’s your thoughts on these?

32:02

I haven’t opened those for my own kids yet, partly just because it’s felt like any money that we’ve wanted to have invested for us is money that we want to earmark towards college right now.

32:17

And, in general, I think it’s a good idea of, no matter your age, to say, I don’t want to invest money unless I’m viewing it as long term, at least five years. Realistically, ideally, something like 10 years.

32:31

So, especially for my bigger kids, if it’s, car money, they’re too close that I don’t want that in the market.

32:41

And so, I think UTMA accounts can make a lot of sense, especially in situations where families are getting, you know, significant gifts.

32:53

I’ll let you all speak more to it.

32:56

One of the dangers about UTMA accounts is that once they become the age of majority, that account is legally supposed to switch to their name, and that they should have full access to it. And they no longer, the guardian really shouldn’t be a part of it anymore.

33:12

And parents, guardian, whoever that is, is going to lose control of it and if they don’t think that’s the appropriate thing to do, too bad, so sad. It’s the kids’ money.

33:26

And actually, we should probably clarify, UTMA, is uniform transfer to minor account and UGMA is uniform gift a minor account, we throw around these acronyms.

33:36

So that’s specifically what they are, and I couldn’t agree more where what I don’t like is we occasionally, we’ll see people using these accounts for college savings. And not only do they not have some of the tax advantages, but they have a huge disadvantage.

33:57

College funds typically are a larger part of the money designated for a kid. I mean, that ends up being a large part of it. And it’s usually started when they’re very young and build up.

34:08

And you know, we’ll see, you know, a quarter of a million dollars in one of these transfer to minor accounts that is going to be dropped on a very, very young person.

34:20

And when a kid is 5 or 6 years old, you just don’t know, you know, you may be doing ultimate harm.

34:27

Yes. As far as being responsible with your child.

34:32

So I’m not a big fan of those for college saving purposes.

34:36

I think it’s fantastic for you know, gifts to, you know, annual birthday gifts and Christmas gifts and things like that, that’s great.

It’s not gonna you’re not gonna ruin a kid’s life, but but when it comes to larger amounts, and if, for example, if there’s large amounts that come by way of inheritance or gifts, from grandparents or things like that.

35:00

Man, if mom and dad can intercede and say, hey, here’s a great way to structure this, you don’t want to do damage to the kids.

35:07

I mean and it may not, but it might. And the problem is you’re trying to make a call before you, really, before your kids have mature and what the effect is.

35:19

Yeah because I mean, you know, when I think of Collins, my hope and goal is that when she reaches the age of majority, she has learned how to handle a large sum of money like that. But, if she hasn’t, the consequences won’t be good.

35:35

When she just has a large account like that handed to her.

35:38

Um.

35:42

I lost my train of thought there, but, yeah, well, and the other thing I was just going to add is that, most, um, UTMA accounts, they could create dividends and interests and possibly capital gains.

35:59

If those amounts of income, or under, about $2000 a year then a tax return isn’t needed to be filed for the kid.

36:08

But, if it, if it becomes substantial money, the tax implications get a little bit messy. You get into things called kiddie tax, and they have to file returns, but they may have to pay rates near the parents’ rates.

36:20

And so, you just want to be strategic and know all what you’re getting into, and we help our clients think through that.

36:28

My point, I was thinking, was UTMAs definitely have some good qualities to them.

36:34

And, I think, being clear with communication with your children, if they do have an UTMA account is really important.

36:40

Talking to them about, it’s not just the large sum of cash that’s going to be dumped on you.

36:46

And setting up this expectation, I don’t know, maybe it’s a down payment for their first house and talk to them, like it’s the down payment for their first house, not money they can just spend on anything clear and trying to get that mindset in their heads so that they don’t think of it as just money to spend, I think is really important.

37:09

And, you know, and again, back to that point of  teaching them this is what the purpose of this money is for.

37:15

You know?

37:16

And if it can be, hey, we’re saving up for your first house, know, drive that in so they think about it. That’s what this now counts for now, and hopefully you’ve done a good job of that all the way along so that that message sticks.

37:29

Maybe house prices won’t be insane when kids do that. But maybe that’s a real strategy now based on housing.

37:39

Yes, um, OK, so, last kind of topic we have, here is, when do I save for college? This is a question we get a lot from new parents and grandparents that are clients, so, you can see this is Drew’s son, Oakley, crying at his I believe his preschool graduation.

38:04

And, uh, know, this is a happy occasion but, you know, Oakley could end up looking just like this if he heads off to college with no plan for how to pay for it. Exactly.

38:15

Exactly. That was a couple of years ago. So, Oakley is much mor mature now, as a second grader, I think he could look back at this and smile.

38:24

Yeah, so when, when to save for college? Obviously, the sooner, the better!  Right? We know that the more time that you have to save, you’re going to reap the benefit of hopefully being able to take advantage of compounding interest to help have some investment growth along the way.

38:43

But also, if you save when they’re young, you don’t have to put away as much every single month than if you wait 5, 10, 15 years. And we know it’s expensive, and we know there are questions about what college is going to look like in the future.

39:00

And there’s so many unknowns of, could they get scholarships? Or could college be free in the future? We just, we just don’t know.

39:10

But what I know is, we have worked with a lot of clients and I have yet to find a client who has regretted what they have saved towards their college savings and specifically, in a 529 College Savings Plan.

39:27

I’ve yet to find a client who said, that was a bad idea. And I almost feel like sometimes people use it as an excuse to not save for college by using some of the same arguments. Well, what if they get scholarships?

39:44

Well, what it if they don’t go to college?

39:48

Those are not unreasonable questions, but they all can be alleviated and there aren’t drastically terrible results if you save and you don’t spend at all.

39:59

That’s my rant.

40:02

It’s a good rant. Yeah, yeah. I, I totally agree, Drew.

40:06

In fact, you know, the exercise used to be, you know, back when Windward started, and I think this is becoming less and less applicable, but it used to be, do you want to send your kid to public school or private school? How many years do you want to provide blah, blah, blah. And then, you can look it up on a table and build in inflation, and then let it go, You know, when you do a calculation, start putting in this, this amount, away, per month.

40:35

I feel like that’s less relevant today because of the uncertainty you talked about. It is going to be more uncertain.

40:42

So, doesn’t mean you shouldn’t have a college fund. I think it is probably more important to have it.

40:48

But what you want to make sure is that college fund has some flexibility and you’re putting it away proportionately. And the earlier you start the better.

40:57

You know, Drew’s Dad, Steve, who is a senior wealth manager, often says, just start. You know, doesn’t matter how much. I don’t care if it’s, you know, $50 a month.

41:09

Just start, because because it’s a long timeframe over time, you’re going to have more flexibility, you’re going to make more at different times in your life and different things.

41:21

But if you’re moving in that direction, it’s just helpful.

41:24

And so, the sooner you start, the better.

41:27

In fact, I’d say when a kid is born, it’s a good time to start no matter how small. Don’t worry about that.

41:35

Yeah, I love that.  Because you’re really setting up a habit of saving for their college, because I mean, parents, you know, young parents are at a time where you’re getting pulled into a lot of directions, financially. A lot of parents, house payments, have student loans, then they’re saving for college for your kids when you might still be paying for your own. You’re getting pulled in a lot of directions, but by starting to save something, even if it’s $25 bucks a month, you’re just setting that habit so that as they get older and you know, you inevitably get raises and pay things off, you can adjust those savings amounts to say, well, gosh, I gotta raise, and instead of $25 bucks a month, we can do $50 now.

42:20

And then just slowly bump up year after year.

42:23

Um, but you just, you gotta start. That’s, that’s the best way to go.

42:29

And there’s no right answer about how much it has to be, we have clients who really philosophically say, hey, we want our kids to have skin in the game.

42:37

We have some clients who say, hey, we expect our kids to pay for most or all of college, and there’s nothing wrong with that, but if you at all think you want to help, and I would encourage clients to probably try to help because it’s so expensive. I think it can be a really good lesson for a student to have some amount of student loan to learn how to manage that, and how to deal with it, and to take their own school really seriously, but it is brutal if they have hundreds of thousands of dollars of debt, out of college, it’s more than a house loan.

43:12

And I don’t know, just quick point on that.

43:16

Well, and one of the things that probably one of our most painful conversations we have, ARR.

43:24

No, this is my: put your own oxygen mask first conversation.

43:30

Put on your own oxygen mask first.

43:32

We frequently will see people who have got high school aged kids.

43:38

They are way behind the curve on funding retirement, their way behind the curve on funding kids’ college and, know, from our standpoint, the prudent thing to do is take care of your retirement first. You have to prioritize it.

43:56

The earlier you start, the less of an issue that is, and may not be an issue at all, But if you’re late, if you’re late in the game, there are lots of answers for paying for college.

44:08

There is no Retirement Fairy.

44:10

If you don’t have enough, you got a problem and you can end up being a liability to your kids so you really have to go through the computations and have a serious plan, if you’re late and emotionally it’s just unbelievably difficult. You know, most of us love our kids very much. You want to take care of them and you want to get them off to a good start. And you might not be in financial shape.

44:37

You know, retirement is a real liability that’s coming and you can’t, you know, put your head in the sand and pretend like it’s not and, and you can really end up in bad financial shape.

44:49

So, probably one of the more important things we do.

44:55

Um, switching gears, but what should a grandparent do? You know, we have lots of clients who are grandparents want to help chip in for their grandchildren’s college savings.

45:10

What does the answer to that look like?

45:12

Yeah, it’s probably going to depend on how much you’re talkin’.

45:16

Um, obviously, there’s hopefully some type of conversation happening.

45:22

We say this with clients that have kids and have, their parents, or ultimately the kids grandparents. They’re like, I think my grandparents are going to help them as well.

45:32

It’d be kinda good to know if y’all are on the same page expectation wise, about how this is happening.

45:38

And, you know, what’s nice, about 529 college savings accounts are that they have, they can, anybody can be the owner. So a grandparent could be an owner, or a parent could be an owner.

45:51

Any tax benefit, which is, you know, you if you make a contribution in, you know, a state, that’s where the tax benefit happens on the state income taxes, but the owner of the account is who gets the benefit.

46:06

So sometimes it just depends on what the grandparent is thinking.

46:09

If they’re thinking about giving a Christmas gift towards college education, a holiday gift for a birthday gift of, you know, say, $100 or a couple hundred dollars, it then becomes a question of, hey, grandparent, do you want to have that 529 account and deal with kind of the headache of it? You’ll get a little tax benefit of it.

46:28

But if the if the parents have a 529 account, maybe you just want to add that money to their accounts. That’s what we see a lot of times is that maybe a grandparent just adds money to the 529 account that the parent has.

46:47

But grandparent, you can have an account to, especially if you’re doing significant amounts of money, because ultimately you get to control that.

46:55

You can change the beneficiaries. You can decide if it really goes to them or not.

47:02

Those are a couple of considerations I think about.

47:05

You know, I totally agree with your comment Drew, that it’s better if Mom and Dad and grandparents or grandparents want to help. It’s better to have a conversation.

47:17

But, what we know is, this is the way these money issues play out in a family, so, grandparents are worried mom and dad aren’t putting enough away for college, and they don’t want them to count on it, so they don’t want them to know what they’re doing. And so, no gift back, this opening comment that Brandy made about it being taboo and we’ve got all these hang ups.

47:37

And you know you gotta really examine that, and say, Am I really, you know, is the goal here to help Mom and Dad, am I trying to help the grant can, or what you know? And how can I be helpful?

47:51

A lot of stuff gets played out in, in this scenario.

47:56

Yeah, boy, those are great comments.

47:58

I think just to kind of sum it up, grandparents have the option to either give the funds to an account that the parent is the custodian of, or they could open up their own 529 account for the benefit of their grandchild.

48:13

And the decision there was in line, who gets the tax benefit and how much control you want over the account.

48:21

Um.

48:24

And the limits are very high in terms of how much can be put in.

48:29

It is per child, so no. But unless you’re really funding exorbitant amounts of money, they typically don’t even come into play for what we see.

48:45

All right. Well, that’s all the time we have for today and keep an eye out for parts 2 and 3 of our kids and money series. Where we will talk about preteens and teens, and young adults and many. If you have any questions about what you heard today, or would like to hear more about how, when, where it can help you, please reach out. My e-mail is on the screen. We’d love to hear from you. Thank you.

49:11

Thanks.