During my late teens, my mother gave me two worn, blue, passport-sized notebooks detailing my custodial investment accounts. I had no idea what to do with them, but it didn’t matter because the accounts were empty anyway. Maybe for the best because I’m pretty sure my assets wouldn’t have stood a chance.
Now that I’m a mom, I opened a custodial account for my 4-year-old son, and I often think about how I can prepare him to take control of his investments in the future. If you’re looking for ways to prepare your child for investing, a seasoned parent and financial experts have some ideas.
Share monetary values early
Preparation starts as early as possible when it comes to teaching your kids about money, says Christina Livadari, a certified financial planner and co-founder of Mana Financial Life Design in Marina Del Rey, California. Regardless of your child’s age, you can start by talking openly about finances and sharing your values around money.
Something I’ve started doing with my son is teaching him the value of giving by encouraging him to give toys away before buying new ones. The approach Livadari recommends for teaching the value of money is to assign what she calls a “duty characteristic” to every dollar you give your children.
“One of my favorite things is taking the dollars and really dividing them in ways that really fit the values,” Livadari says. another dollar you can spend.
Learn the basics of investing
A custodial brokerage account is an investment account opened by a parent or guardian for a minor until the age of majority.
If your child has a job with taxable income, you can also help them open a custodial IRA or Roth IRA.
The good thing about custodial accounts is that even though the kids don’t control the accounts until they’re of age, you can show them what’s going on.
Michael Costello, a retired consumer products executive based in Miami and a parent of three, says he prepared his now-grown children to manage their custodial accounts by teaching them about budgeting and saving early. It also allowed them to view their investment accounts and watch them grow and facilitated investment discussions with them.
“We ended up having a lot of conversations about why do you hold long? What should you look at? What are ETFs vs. Common Stocks? What do bonds do?” he says.
Educating his children on exchange-traded funds and other assets made him confident that they had access to the custodial accounts when they turned 18.
There are many ways to teach your kids about the power of investing. Helping them understand what compound interest can do for every dollar invested can motivate them to invest for the long term. If you think they’re ready to start trading, some brokers offer youth accounts that allow teens to start investing with parental supervision.
Set goals and learn delayed gratification
Delayed gratification is an important adaptive skill parents can teach children to manage custodial accounts for them, says Anna N’Gie-Conte, CFP and founder of Dare to Dream Planning in New York.
Because custodial accounts are brokerage accounts that can be tapped at any time, it’s important for kids to view their investments as long-term money that can buy them flexibility and options in the future, she says. This can help them refrain from spending it now.
“I think one of the superpowers of people who are really financially successful and just successful period is when they have the ability to say, ‘I understand that I want this right now, but it will be so much better if I wait and if I move on to do it,” she says.
But for delayed gratification to work, it’s important to have financial goals and a plan, which I didn’t have as a teenager, and why I don’t think the investments in my escrow account would have lasted long. For the record, my financial plan was to become a rich actress and fund all my lifetime expenses that way.
When setting financial goals with your children, it’s a good idea to set both long-term and short-term goals. Why? Some people just aren’t inspired by financial goals that are too far in the future, Livadari says.
“Sometimes it’s buying a house in the next three years, but sometimes it’s a vacation … and that’s OK.” It’s their version of a life they’re excited to live,” she says.
Trust the process
It’s also okay for your kids to make mistakes with money—they can be teachable moments, Costello says.
“You can’t hold them and watch them, you have to give them control, they have to make some mistakes and then over time they kind of figure out how to manage the money better.”
If, despite their training, you feel that your children are not ready to manage their assets, another option is to transfer some of their assets to a trust where you can retain control after they come of age.
This article was written by NerdWallet and originally published by The Associated Press.