You Can Help Your Toddler's Financial Future

Dear Working Mom,

Do you love investing, or feel overwhelmed and confused by it?

No matter how you feel, I bet you want the best for your kid.

And it’s good to start early!

These are some of my favorite tips. They don’t take very long, and they don’t require big lifestyle changes or lots of time. A little goes a long way when you start nice and early.

1. Freeze your kid’s credit. While it sounds like a bit much to already be thinking about a toddler’s credit score, it’s not. Each year, over a million kids in the US become victims of identity theft. Because no one is yet keeping an eye on their credit score or report, it can be years before you or your child even detects this problem. Their credit scores are damaged in a big way, and families may become saddled with unfair debt and expenses as a result. There is a simple thing to protect your kid’s credit score: you can request to freeze your child’s credit. This idea is the biggest hassle on this list, because it needs to be done individually with each of the 3 credit bureaus. However, the hassle is worth it! Remember, you don’t need to do it all in a single day. I’ve learned the hard way that financial improvements are best done gradually and with patience. Just commit to doing all the work over 3 or 4 weeks, if that feels easier than making it a big production on a day off. Instructions are at https://www.northwesternmutual.com/life-and-money/how-to-freeze-your-childs-credit-and-why-you-should/
2. Start a 529. A “529” is a special account that allows you to invest money for your child’s education with tax benefits. Even if you don’t invest a lot or feel comfortable with the word “invest”, you should still open a 529 for your child. Many states lower your taxes in some proportion based on contributions, and when your child makes withdrawals (for college, for example), they pay fewer taxes than a normal investment account. Plus, the funds in the account can be used for any member of the child’s family. If it’s financially possible for your family, set up an automated transfer from your bank account into your child’s 529 each month. And if that’s not possible financially right now, set up the 529 anyway. When friends and family ask what to get your kid for their birthday or a holiday, you can share a link or snail-mail deposit letter, so they can put a little money into the 529. Every little bit counts, and if you start when they are very young, even very small contributions can become a big support later on. Note– you don’t necessarily need to reside in same state as your 529 program. Some of the best-performing 529s are listed at https://www.savingforcollege.com/529-plans/performance-rankings
3. Narrate the process of checking out in a store or online order. Kids don’t learn how to think smart about money by magic. Kids learn good habits with money by observing you and how you handle it. Even if there is not a lot of money right now, you can still help build good habits and mindsets with your kid that will serve your kid their entire live. However, talking openly with kids about money can be difficult if you don’t often talk money with others. A very good place to start is to narrate how a checkout process works. Even with a very small toddler, you can start to show the gist of what is happening during checkout. For example, “We put our things in the basket, and then get ready to pay. Each item has a cost, and we need to give enough money to get all the things we picked out. We give our credit card (or cash, etc), and then we give some of the money. Where did we get this money? Mommy got it at work. Now we give them some of the money, and it leaves us and goes to the store, and we’re allowed to take these things home. This is one of the reasons mommy works! Mommy gets money, and then we can buy food and toys and other things we use.” If it feels uncomfortable to do this in stores, then make a point of doing it at home when you’re shopping online. Although this is just the tip of the iceberg when it comes to things you’ll need to discuss about money with your kid, it’s a great starting place. It gives them a natural spot to ask you questions, and connect together the ideas of work, money, and things we buy.

What do you think, mama?

If one of these ideas is new to you, or all of them are new, give it a try. Pick one and start small… you will be so glad you did, when your little person is a big person!

All my best,

Wendy