Rap star couple Cardi B and Offset gifted their 4-year-old daughter $50,000 for her birthday. While the hip-hop power couple received some backlash for giving their child such a large amount of money, others looked at the monetary gift as a way to start building wealth for their child.
It’s safe to say that providing a level of wealth for your children is an important part of helping them prepare for their future. Some parents have opted to gift their kids small businesses or put their funds toward investing opportunities.
How to start wealth building for your child
There are many ways to ensure your little ones are set and make the most fiscally responsible choices for their future. Patricia Roberts, chief operating officer of A Gift for College, a college savings program, said, “Utilizing a 529 college savings plan can be a very good choice – as earnings on these investments grow without being taxed and are never taxed when used for a wide range of higher education experiences (not just college) across the U.S. and world,” she told Finurah. “In addition, 35 states and the District of Columbia offer an annual state tax deduction or credit for contributions to these plans.”
One Pennsylvania father took a more creative route and bought his daughter a vending machine for Christmas. The 28-year-old dad told the Atlanta Black Star, “I want her to be a boss,” he said. “I want her to understand [the] value of being a business owner at a young age. So, when it comes to her growing up… and she has to make decisions about how she can earn money, she knows that a job isn’t the only way.”
Ultimately, there is no singular way to save and build for your child’s future because there are so many routes a parent can take.
Get professional help
Toni Nasr, a fintech analyst at Investing in the Web, suggests taking advantage of robo-advisers. Nasr explained that it’s a great way to maintain the value of money and invest it in a safe, flexible, low-cost, and effective way.
“Robo-advisers can be a good option for parents to open an investment account for their children,” Nasr told Finurah. “You do not need to perform frequent reviews, and the process does not require a lot of time commitment. Many platforms offer accounts for kids that are tax-efficient and managed at a low cost. You might even find free robo-advisers. It is a set-and-forget strategy where robo-advisers’ algorithms recommend a suitable investment strategy based on your financial goals, risk perception, and investor profile (they use a questionnaire).”
Protecting large monetary gifts
Nishaea Richardson, a financial coach and founder of Shesthebudgetguru, understands the myriad of questions that fill a parent’s head when their child is gifted a large sum of money. Setting up a trust fund is a great way to “protect your child’s assets and financial future,” Richardson said. It’s important to consider the following:
- Decide what type of trust fund is right for your child because there are many different types, so research beforehand.
- Choose a trustee. This person manages the trust fund and “makes sure it’s used in accordance with your wishes for how you want your child to use the money.”
- Decide how much money you want to put in your child’s trust.
Or you can try a custodial account, a more flexible saving plan for your child with less restriction.
“Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act(UTMA) are two ways to gift money to a minor child without setting up a trust,” Richardson said. Both the UGMA and UTMA allow the gifted funds to be managed by a custodian, who will oversee the account until the child reaches legal age. The money in the account can be used for the child’s education, medical expenses, or any other purpose that benefits the child.”
You can also save for your kid by putting their money in a high-yield savings account.
With an HYSA, you can earn interest on your deposited funds because the interest rates are usually higher than that of a regular savings account; this means more money in your pocket over time, Richardson explained.
“Additionally, HYSAs usually have no monthly fees and offer higher withdrawal limits than standard accounts, making them an excellent choice for those who want to keep more of their money accessible,” she said. They can also be used as safety nets in emergencies or for immediate child expenses like school trips or extracurricular activities.
“No matter what you choose to do with the money, it is important to remember that it should be something your child will be happy with,” Richardson said. “This money is for them and their future!”