August 16, 2021Raising Financially Savvy Kids: The Ins and Outs of Loans
When teaching your children about money, we know that actions speak louder than words. So how about an activity to show them the way?
The Chief Revenue Officer of a software company was shopping with his six-year-old daughter when they came across a popular doll with a $20 price tag. The girl, a bit dismayed, only had $15.
Typical responses you might have given your children at any given time include:
- Give her the $5
- Lend her the $5
- Buy the toy yourself
- Tell your child she’s out of luck
The girl’s father, being a savvy money manager himself, decided to teach a different lesson. He presented her with three different options:
- Buy something cheaper. She would receive instant gratification but likely wouldn’t love what she got.
- Continue to save. After all, she was only $5 away.
- Invest her money.
Option 3 piqued her interest. It led to a longer discussion, where instead of the father lending her $5, she lent him money and earned interest of $1 each month. The girl continued earning money by doing chores, but was fascinated that she could earn passive income “by doing nothing.”
“I’m excited to be able to teach her things I learned a lot later in life, but I’m hoping to get out of debt soon. I have a feeling she’s a bit of a shark,” the father said.
Looking for other ways to set your children up for success? A Coverdell Education Savings Account is one of the best ways to save for your children’s college fund, but it also has the flexibility for you to use it for education expenses long before then.
A Coverdell Education Savings Account is a nondeductible account with tax-free withdrawals for a child’s education expenses. You may contribute up to $2,000 per year on behalf of children under 18 years of age. All earnings on the account are tax-free if the money is used for education expenses. This includes tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible education institution.
We’re Here to Help!
If you’re ready to start exploring options to we’re here to help. We’ll sit down with you one-on-one to find the right account and plan that works for you. Stop by or give us a call at 800–226–6673 to get started.
Each individual’s financial situation is unique, and readers are encouraged to contact PEFCU when seeking financial advice on the products and services discussed. This article is for educational purposes only; It does not constitute legal advice. If such advice or a legal opinion is required, please consult with competent local counsel.