Multigenerational Wealth: How To Teach Your Kids and Grandkids About Investing
People’s relationship with money—or as the kids are calling it these days, your “money story”— is developed from a young age. In fact, a Money Advice Service study found that most of the money habits we carry into adulthood are set by age seven. That’s right—seven!
So if you’re eager to help your family build and maintain generational wealth, it seems that you can’t get started too early.
As a self-directed investor, you understand the value of unique and creative ways to build wealth. And if you want your children and grandchildren to follow in your footsteps, you’re the one who’s going to need to teach them. After all, they’re probably not going to pick up self-directed investing lessons from school, friends, or even the money podcasts they listen to—if they’re listening to them at all.
But unfortunately, engaging your kids and grandkids in your investment journey isn’t always an easy task. Not only do many kids—even young adults—see money conversations as ‘boring’, but money can also be a sensitive topic to discuss.
Nevertheless, money conversations among family members are incredibly important if you want to leave behind a lasting legacy of generational wealth, security, and good financial stewardship.
Your Value as a Self-Directed Investor in Building Generational Wealth
Whether they see it or not, your kids and grandkids are lucky to have you—and not just because of your winning personality and unconditional love (😉). They’re lucky to have you because as a self-directed investor, you’ve developed money habits and wealth-building strategies that will help set them on a path to successful wealth-building that is far ahead of their peers.
You see, the younger generations have some pretty significant financial challenges coming their way when it comes to saving for retirement.
They face a future with the real possibility that Social Security and Medicare will be cut significantly.
They can’t rely on good old company pensions to supplement their retirement savings.
They might experience significantly more turbulent markets for longer periods of time than you or I ever experienced.
And they’re facing all this as they anticipate longer life expectancies, which means longer retirements they’ll need to fund—all by themselves.
Clearly, the old way of doing things (re: saving for retirement) isn’t going to work for them. They’re going to have to save creatively and invest even more creatively to build a future that’s both secure and enjoyable.
That’s where you come in.
The wealth-building strategies you’re employing as a self-directed investor are likely just what they need to save and invest creatively given the future that’s coming for them long after we’re gone.
But as many of us old-timers know, getting your kids and grandkids engaged—really engaged—in conversations about money and investing can be challenging at best, and downright disastrous at worst.
Still, it’s well-known that the top 1%ers do something a lot of other parents and grandparents don’t do: They talk to their kids about money. One of the single best ways to create lasting generational wealth is to cultivate a family legacy of good financial stewardship.
My previous blog post covered how to talk to your kids and grandkids about their financial future—and I encourage you to check it out if you haven’t yet! This article is going to help you actually get them engaged in taking action so they can start exercising the muscles now that will serve them well financially in the future.
Start the Conversation Off On the Right Foot
There are right ways to engage your kids and grandkids in learning about investing, and there are wrong ways. Wrong ways to approach this conversation include:
Judging their financial decisions,
Talking down to them,
Trying to control how they save or spend their money,
And ignoring the real challenges they’re facing when it comes to wealth and finance.
It can be easy to get caught up in the fear that a conversation about finances might go sideways and cause unwanted family drama.
But teaching your kids and grandkids about investing is critical to building generational wealth, so you want to make sure that the conversation goes smoothly. It’s well worth the time and effort to prepare exactly how you’ll broach the subject of finance and investing with your kids and grandkids.
To start this money conversation off on the right foot, take the time to learn about and truly understand the obstacles they’re facing when it comes to building wealth and saving for retirement. Plan out the stories from your own investing journey you want to share with them. Jot down questions you’d like to ask them to get them engaged in the conversation.
Above all, remember that empathy can go a long way when discussing sensitive topics like money and finance.
Teach Age-Appropriate Investing Topics
If a lifetime of money habits are already built by age seven, this means it’s never too early to start teaching kids about money.
As a parent, you’re entirely in control of how you teach your kids about money. From talking to preschoolers about the purchases you’re making at the grocery store to allowing your middle schooler to budget for and plan a family meal, there are countless ways to incorporate money conversations naturally into your daily life.
As a grandparent, you may want to tread a little more carefully. While you certainly have much to offer in terms of teaching your grandchildren about money, you’ll want to ensure you’re respecting your own children’s boundaries and aligning with their wishes when it comes to money lessons for kids.
Below are some activity ideas for teaching kids about money based on their age.
Open a Custodial Account and Involve Your Kids and Grandkids in the Decision-Making
The most powerful lessons are often learned by doing. The truth is, your kids and grandkids may not truly learn much about investing until they actually start to invest. And you can start investing with them at a young age by opening a custodial account or other brokerage accounts that allows your child or grandchild to start investing with you as their guide.
When it comes to custodial accounts, you have lots of options. 529 College Savings Plans, custodial Roth IRAs, UGMA/UTMA accounts, and even youth-specific brokerage accounts are all available for young investors and their relatives. See more details about different types of youth investment accounts below:
529 College Savings Plan
A 529 College Savings Plan is a great way to build funds that can be used for future college education expenses, including trade schools and community colleges. Contributions may be invested into available ETFs and mutual funds. Withdrawals are tax-free as long as they are used for qualified education expenses.
Custodial Roth IRA
A custodial Roth IRA allows minors to start saving for retirement as soon as they start earning income. There is no minimum age requirement to open a Roth IRA—even babies can make contributions! The only caveat is that they must actually be earning income in order to be eligible for contributions.
UGMA/UTMA Accounts
Custodial accounts under the Uniform Gift to Minors Act (UGMA) and the Uniform Transfer to Minors Act (UTMA) can hold gifts and transfers of money or other assets for a minor under their specific state’s law.
A UGMA Trust Account allows a parent or relative of a child to invest and manage contributions in stocks, bonds, and mutual funds. The account is transferred to the child between the ages of 18 and 25 depending on the state in which the account was opened.
Similar to a UGMA Trust Account, a UTMA Trust Account offers more flexibility in how contributions can be invested. UTMA contributions can be invested in alternative assets such as real estate, royalties, and precious metals.
Youth Brokerage Account
If none of the above options are appealing or available, you can also simply open a taxable youth brokerage account. Unlike the above options, youth brokerage accounts are actually owned and managed by the teen—they are not managed by a custodian.
However, you can act in an advisory capacity to help your young family members learn about and make sound investing decisions.
Involve Your Kids and Grandkids in the Investment Decisions
Once you’ve decided what account to open and started making contributions, involve your kids and grandkids in the decision-making process for how that money gets invested. Allowing them an active role in investment decisions will help them to truly experience the power of investing as well as feel the consequences when poor investments are made.
Of course, you rightfully don’t want your hard-earned contributions to be invested carelessly. To prevent your contributed dollars from going down the drain, consider allotting your kids or grandkids a portion of the contributions to make investment decisions with or providing them a choice of pre-selected investment options.
Make sure to discuss with them your process for choosing investments so that they know exactly what to look for in the future when they’re managing their own portfolios.
Invite Them to Investment Meetings
Finally, one of the best ways to engage your kids and grandkids in the investing process is to actually invite them to one or more of your investment meetings with your financial advisor or your self-directed IRA administrator. Give them the gift of a real-live look into what happens during these meetings so that when the time comes for them to start working with their own financial professionals, they’ll know what to expect.
At Chicago Trust Administration Services, we welcome the opportunity to meet with your kids and grandkids so we can supplement the invaluable education you’re providing them. We love to see our clients take an active role in building generational wealth and are excited to partner with you in developing your legacy. To schedule your next meeting, give me a call at 312-869-9394 or email me at steve@ctasira.com.
___________________________________________________________________________
*The content and opinions in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
**CTAS professionals are not financial advisors and cannot provide advice or recommendations regarding specific investment decisions.