LESSONS FOR FUTURE MILLIONAIRES

How do you give your children or grandchildren the right attitude about money? And a good financial start? While you can gift your child up to $12,000 a year tax-free, consider these options, wrapped up with financial lessons.

Roth IRAs. If your child has a job, why not encourage saving for retirement with one of these accounts? Your child can contribute to the Roth IRA, and so can you. An individual can put up to $4,000 in a Roth IRA during a single year, but you cannot contribute more than the child or grandchild will earn annually from his or her job.

529 plans. These are state-based college savings accounts, and federal laws now make all investment gains in these plans tax-free (provided you use the money for education). Each year, a married couple can put in up to $24,000 per beneficiary without triggering gift taxes; grandparents can put in up to $120,000 annually*. Plans vary by state and you do not need to choose the plan from your state – Utah, Iowa, New York and Nevada offer some of the most highly regarded 529s.

Stock. Grandparents and parents might think about gifting stock shares from a well-known company to a child – preferably, a company the child knows about and has an interest in. Over time, a child can follow the progress of the stock and the company, and learn lessons abut the economy and the markets.

Books and games. Consider The Sims 2: Open for Business, a computer game in which a child can set up and run a mock chain restaurant, hair salon, fashion boutique, or almost any other kind of small business – even a lemonade stand. Most likely they’ll have fun and not even realize they’re learning valuable financial lessons. In print, you might try Growing Money: A Complete Investing Guide for Kids by Gail Karlitz (Penguin Putnam), Investing Tips Grampa Taught Us by Victor Eber (Authors Choice), and Ben Franklin’s The Way to Wealth (Applewood), just 30 pages and full of timeless principles.

Most importantly, start talking candidly to kids about money as early as possible. Too often children have little or no information about finances until they’re forced to deal with them. By sharing your knowledge now, you can take the fear out of financial matters and help your child plan for a more secure future.


Ishan Goradiya is freelance writer and loves to write about financial planning. These days he is writing on Benchmark Federal Credit Union.