If you’ve ever carefully checked your child’s curriculum in grade school, you’ll notice that personal finance or money management aren’t listed. Unfortunately, schools don’t offer classes for kids to learn how to manage the money they earn or are gifted and save for the future.
That means a child will have to stumble through and make costly financial mistakes as they learn how to manage their money unless they do a considerable amount of self-study or receive guidance from a parent.
If you’ve read this far, the chances are that you’re a parent concerned about your child understanding how to delay gratification and save a portion of the money that comes their way.
The Acorns “Early” account can help.
Acorns is a website/app where you’ll find the ideal combination of saving money and teaching your child how money works, such as investing and compound interest.
The Early account is a “custodial account,” meaning it is opened under your child’s name, but you have control of it until they reach the age of majority, which is 18 in most states. This means your youngster can watch the money in their account accumulate but not be able to make withdrawals until they’re older.
The Acorns Early account can be opened with as little as $5. You then sign up for monthly automatic withdrawals from your bank account, which are deposited in your child’s Early account. You can also open an Early account for each of the kids in your life at no extra cost.
The money in your child’s account is deposited in an “Aggressive Portfolio” managed by professional money managers, with capital appreciation being the goal. Friends and family can also invest for your child through a link you give them.
How is an Early account different from a 529 college savings plan?
Some parents use a 529 plan to put money away for their child’s college education. Contributions are not tax deductible, but any growth in the account is tax-deferred and can be withdrawn tax-free if the money is used to pay for approved education expenses. If it isn’t, taxes must be paid on the withdrawals, similar to a traditional IRA.
Deposits in an Acorns Early account are also not tax-deductible, and growth in the account is also tax-deferred. However, money withdrawn from an Early account by your child can be used for any purpose, not only education, without a penalty.
The educational aspect of an Acorns Early account.
On the Acorns website and app for Early accounts, you’ll find a learning section where you and your child can learn together and build their financial knowledge and confidence. The section contains videos, articles, and tips for new and experienced investors.
You can also use the compound interest calculator and show your child how the money in the account could potentially grow over time through the power of compounding. Together, you’ll also learn about the Rule of 72, ROI, crypto, the economy, and much more.
The sooner you begin, the more time there is for the money to grow. Similar to your 401(k) or IRA, your Early account will be affected by market conditions, where there is always the risk of loss of capital.
However, since 2012, the S&P 500 stock index’s average annual rate of return has been over 12%. As the saying goes, “It’s not timing the market that counts; it’s time in the market.”
What you need to open an Acorns Early account for your child.
Opening an Early account is simple, can be done online, and takes less than 10 minutes. All you’ll need is your child’s full name, date of birth, and Social Security number. You’ll need to provide that same information on yourself, along with basic information like your address.
Consider opening an Acorns Early account for your child. For as little as $5 per month, you can help fund their future and teach them lessons about money that will positively impact them for the rest of their life.