5 things to do today so your child will be richer tomorrow

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You don’t have to create a trust fund to ensure your child’s financial well-being later in life. In fact, if you’re a parent trying to create a financial plan for your children, you shouldn’t focus solely on how to give them money. You should also be laying a foundation for them to learn how to manage money on their own.

One of the most important things parents can do to help their kids achieve financial success is talk to them about money. The T. Rowe Price 2016 Parents, Kids & Money Survey found that parents who discuss financial topics with their kids at least once a week are more likely to have kids who report being smart about money than parents who don’t have financial discussions with their children.

Talking about money is only the first step in helping kids develop fiscal responsibility. Here are nine steps parents can take now to help their kids have a better financial future.

1. Give your child an allowance

One of the best ways to lay a strong financial foundation for your kids is to give them an opportunity to manage money on their own from a young age. Paying kids an allowance is a great way to teach them about the value of working for what they want.

“New toys, going out with friends, even a car — having to work for, save for and spend their own money will help them be much more aware of the value of a dollar and much less likely to spend frivolously when they are eventually on their own,” said Bill Engel, a certified financial planner at Fort Pitt Capital Group in Pittsburgh, Pa.

Giving kids an allowance — and the opportunity to make spending decisions — helps them learn budgeting, which is the foundation of responsible behavior, said Claudia Tabacinic, head of deposits and payments at TIAA Direct.

Moreover, it’s OK to let kids make bad choices about spending — doing so allows them to learn from their mistakes.

2. Encourage kids to save

According to the T. Rowe Price survey, 51% of kids spend their allowances as soon as they get them. However, there’s value in learning delayed gratification, Engel said. He went on to suggest that parents teach their kids how to save for a goal.

Parents can require children to save a certain percentage of their allowances or any monetary gifts they receive. Several banks — including Capital One, U.S. Bank and Wells Fargo — offer savings accounts for kids. Although most banking is now done online, Engel recommends taking a child to a bank branch to set up a savings account and make an actual deposit with cash.

Parents can also encourage saving by giving their kids incentives. Tabacinic said she gives her children the option to spend or save gifts of money they receive but offers to match any amount they save.

“It encourages the idea that spending isn’t always the right thing to do,” she said.

Going this route also introduces the concept of matching contributions — which many employers offer for retirement savings — and taking advantage of “free” money.

3. Open a brokerage account for your child

Less than half the parents surveyed by T. Rowe Price reported teaching their children about the value of long-term investing. Moreover, just 14% said their kids had investment accounts. It’s important to teach children about the stock market and encourage them to invest at a young age, so the concept won’t be foreign to them when they need to choose investments for retirement accounts later in life.

“The earlier you can familiarize [children] with it, the less intimidating it will be,” Engel said.

You can open a custodial brokerage account, which gives you control until the child reaches age 18 or 21 (depending on the state). Although investing in a mutual fund is ideal because it offers diversification, you might want to start with individual stocks because they are easier for kids to grasp, Engel said. Have your children pick companies they like — such as Apple, Disney or McDonald’s  — and then walk them through the process of buying shares and watching them perform.

Be aware that assets held in a child’s name can affect financial aid eligibility and even trigger a tax bill, if earnings exceed a certain amount. However, if you let your child buy stocks through a brokerage account, you’ll have to gift them the money, an action which could trigger the gift tax, Engel said.