best option for young (minors) children bank/brokerage accounts?

[corp_sharecropper]

I know this has been asked before (generally) but I have a few opinions and would like to know what others have done as the last thing in the world I want to do is setup a bunch of stuff only to have to unwind/undo it because I later find it less than ideal.

Kids: About to be 4 & 7 years old.

Currently, kids each have a piggy bank they got while they were still drooling and could hardly lift up their own heads.. Those suckers are heavy, the thought of raiding them for grocery money should everything go hell, in the depths of March 2020 gloom, did cross my mind , there's a decent amount in them by now between tooth fairy visits, bribes, grandparents, pocket change, a token chore here & there.

My oldest seems willing to blow his little fortune on whatever the latest toy is that catches his eye, which I've been able to talk him down from a few times, but it's caused me to actually consider finally bothering with the idea of setting up the old bank account game (whether I'm the bank or we really get him an account in his name, I don't know).

My thoughts on this are 1) I have ZERO interest in going the route of UTMA account for investments after the process I went through to deal with such things from my own childhood (I'm 39 and I literally just unwound some token stock that my parents bought for me when I was like 10). 2) While I would love to be able to shove money in a Roth IRA in their names right now, I really don't want to bother with some dog & pony show way to generate earned income for them, their too young, and frankly I can't think of anything that I don't know deep down would be anything other than thinly veiled fraud at their ages.

The only obvious remaining contenders in my mind are:
1) A savings account in their names at preferably a B&M bank/CU.
Pros: Easy, no fees, has an "official" feel to it (eg. statements with their names on them that we can look at, a bank branch we can walk into to deposit/withdraw, maybe even a ledger to balance later on, etc...)
Cons: Yet another account, anemic interest (won't be any impressive compounding magic for them to watch).

2) A savings account Momma & Daddy National Trust Bank.
Pros: I set the interest rates (could make things interesting), no extra "real" accounts to manage or login to.
Cons: Will certainly lose it's luster as they get older and see through my game, lacks that "official" touch & feel of a real account at an institution.

3) A 529 account (don't have currently)
Pros: tax advantages, investment options that really can grow and impress with compounding.
Cons: Limited in scope (this is their money, I don't feel right forcing them to lock it ALL up for education, there needs to be some reward along the way afterall), paying for their education is really my responsibility anyway, another account to manage.

4) Taxable brokerage (separate account but in my name, unlike UTMA)
Pros: Very flexible, compounding magic potential, potential for portfolio/fund manager competition game later on.
Cons: Another account, small sums of money might be quite limited without MF's or fractional shares.

5) Virtual taxable brokerage (no separate account, we just virtually "tag" funds with each kids' names but they go into our brokerage account)
Pros: No extra account, no UTMA hassle, compounding magic... The way I envision easily being able to keep their funds separate is simply to invest them in different tickers tracking the same underlying (eg. IVV & VOO).
Cons: Might be a hassle to track but I'm optimistic about it.


So, are there any terrific ideas I'm not thinking of? What's worked for you and your kids? Was growth/compounding important for you/them in deciding the direction you went in? What about the hassle of managing/transacting and then finally taking off the guard rails (actually giving them unfettered control at >18 years old) for what you did with the kids?

[senex]

I tried the following:

#1: Anemic interest. Since time horizon is 10+ years, I want to teach investing, not a savings account.
#2: I struggled with the bookkeeping. I would deposit a birthday check, forget to update the spreadsheet, etc.
#5: Same bookkeeping problem as #2. Perhaps could have solved by choosing a unique etf (that I don't otherwise hold) for each child.

I'm against the 529 for the same reason as you.

So, I think #5 with a unique etf per child would probably be my choice if I were to do it again from scratch.

[Mode32]

Can you clarify why you are against UTMA’s? It turns into a brokerage account when the kids come of age while there are tax advantages along the way. Only con to UTMA really is greater reduction in potential financial aid (and possibility of misuse of funds by child once they take over acct...though, I’d like to think most ‘Boglekids’ wouldn’t fall into the latter)

[lakpr]

DCU pays 6% on first $1000 in savings accounts for everyone, including UTMA accounts. If your “heavy” piggy banks have less than $1k each, this would be hands down the BEST choice.It does involve a minor hassle of parents joining the credit union, and then opening the UTMA accounts.

My kids’ accounts are here

No guarantee that this rate would last forever though! The “6% interest only on first $1000” terms also make it a simple interest asset, so no “ magic of compounding” to see here unless you deliberately deposit less than $1000

https://www.dcu.org

[2tall4economy]

Just now thinking about this myself. What I was planning was to open a account at the same bank wife and I use, and deposit generous interest like maybe 5% / 12 per month so they see it in their statements. And once they hit $1,000 maybe start them in etfs.

They have about $300 now and are ages 5 and 8

[Jack FFR1846]

DCU pays 6% on first $1000 in savings accounts for everyone, including UTMA accounts. If your “heavy” piggy banks have less than $1k each, this would be hands down the BEST choice.It does involve a minor hassle of parents joining the credit union, and then opening the UTMA accounts.

My kids’ accounts are here

No guarantee that this rate would last forever though! The “6% interest only on first $1000” terms also make it a simple interest asset, so no “ magic of compounding” to see here unless you deliberately deposit less than $1000

https://www.dcu.org

6.17%, but who's counting. This is also my suggestion. Both my kids started with this account and my youngest now has $10k saved.

[ThankYouJack]

I like option 2 (Bank of Mom & Dad). I keep it very simple and just have a Google Docs worksheet for my kids. My kids' accounts are just a few hundred bucks and I give them 10% interest so they can really see the money grow. I can show them the initial investment, who it was from and what today's value is. I only transfer larger gifts in (> $20). The rest goes in their piggy banks.

They haven't withdrawn anything yet, but when they do, I'm going to list all withdrawals, what it was for, and possibly what the value would have been today if they kept the money invested.

This is super easy to do, easier than using an actual bank, and you can track things closer. I would definitely recommend it for accounts under a couple grand.

[CyclingDuo]

Kids: About to be 4 & 7 years old.

My thoughts on this are 1) I have ZERO interest in going the route of UTMA account for investments after the process I went through to deal with such things from my own childhood (I'm 39 and I literally just unwound some token stock that my parents bought for me when I was like 10).

4) Taxable brokerage (separate account but in my name, unlike UTMA)

5) Virtual taxable brokerage (no separate account, we just virtually "tag" funds with each kids' names but they go into our brokerage account)
Pros: No extra account, no UTMA hassle, compounding magic... T

What's worked for you and your kids? What about the hassle of managing/transacting and then finally taking off the guard rails (actually giving them unfettered control at >18 years old) for what you did with the kids?

UTMA - your thoughts on it being a hassle are misguided. They can keep cash, CD's, index funds/ETFs, individual stocks, etc... inside of it. It was a great learning tool for them and got them interested in investing as well as learning about doing tax returns. Turned the accounts over to them after college as they were converted to regular brokerage accounts in just their names.

That's the route we went. Adding bank accounts and Roth IRA's when they were in their teens for the more day to day where they deposited their paychecks from part-time work and internships.

CyclingDuo

[Spirit Rider]

A savings account in a minors name, will be a UTMA account.

[aristotelian]

How much money are we talking about? Are we just talking about allowance and birthday presents?

Our 11 and 13 year olds have joint savings accounts with me as co-owner at our local credit union. We use this to deposit occasional gift checks that are made out in their name. I thought it was important for each to have an actual account at a real bank in their name.

For allowances and small amounts, I have a Bank of Dad spreadsheet. For the most part they spend money as their earn it, but when the balance builds up I will cut them a check to put in their real bank account.

Alternatively, if they aren't saving up for anything, I also have separate accounts for each of them in my name at M1 Finance. (The pie platform is super visual and great for kids). Any money they invest I offer a 20% match to help insulate from the ups and downs of the market. When they are of age I will just cut them a check for the balance. They don't use their investment accounts very much but they have been useful to start educating them on the risks and rewards of investing.

Of course, we also do our own 529's for college savings.

[KlangFool]

My oldest seems willing to blow his little fortune on whatever the latest toy is that catches his eye, which I've been able to talk him down from a few times, but it's caused me to actually consider finally bothering with the idea of setting up the old bank account game (whether I'm the bank or we really get him an account in his name, I don't know).

corp_sharecropper,

Why is this a problem now? It is cheaper for him to make this mistake now. Don't talk him down. Let him make the mistake. Unless you provide unlimited funds to him, he will run out of money and leaned his lesson.


We, as a parent, would not around to look over our kids forever. It is cheaper and better to let our kids make their mistakes as early as possible when we are around.


We took our kids to after X'mas shopping. When they learned that they could get the same toy at a substantial discount after X'mas, they no longer buy X'mas toy before X'mas.

KlangFool

[KlangFool]

OP,

1) My kids received a few hundred to a thousand every year since they were born.


2) I held the money in my taxable brokerage account.


3) They could spend that money on whatever that we choose not to pay for. It is their money.


4) Whatever that they did not spend, we invested that money into Vanguard LifeStrategy Growth Fund (80/20).

5) When they were old enough, I give the money back and they have their own checking, Vanguard taxable, and Vanguard Roth IRA.


6) They had graduated from college with about 20K to 30K of their own portfolio each.

KlangFool

[otinkyad]

1) A savings account in their names at preferably a B&M bank/CU.
Pros: Easy, no fees, has an "official" feel to it (eg. statements with their names on them that we can look at, a bank branch we can walk into to deposit/withdraw, maybe even a ledger to balance later on, etc...)
Cons: Yet another account, anemic interest (won't be any impressive compounding magic for them to watch).

2) A savings account Momma & Daddy National Trust Bank.
Pros: I set the interest rates (could make things interesting), no extra "real" accounts to manage or login to.
Cons: Will certainly lose it's luster as they get older and see through my game, lacks that "official" touch & feel of a real account at an institution.

[...]

So, are there any terrific ideas I'm not thinking of? What's worked for you and your kids? Was growth/compounding important for you/them in deciding the direction you went in? What about the hassle of managing/transacting and then finally taking off the guard rails (actually giving them unfettered control at >18 years old) for what you did with the kids?

We used #2 when we started an allowance at age six to let him make his own spending choices. We often forgot to pay him, he obviously didn’t carry his money with him so we had to keep track of expenses and often forgot, etc. We switched to Bankaroo, which is basically just a ledger app, but it was perfect for us, I highly recommend it. He also had access to it on his iPod Touch and later his phone, which may make it seem more real for some, though in our case he didn’t really care.

There are similar apps with debit cards for kids, but the fees are high. When he started spending money without us, we switched to #1 and opened a teen bank account that gave him a free debit card, with access from our joint checking account for easy transfers. In our case it was a MONEY account at Capital One 360. It transitions to a regular checking account at age 18.

I thought about the anemic interest and goosing it, but it seemed extraneous, and disappointing when reality hits. We already had some bonuses built in: books were free (later $1 to remind him they do cost money), as were souvenir T-shirts when traveling.

[anders37]

When my kids were late elementary school, I went to the APP store store and got an allowance/savings tracker app. I could sign in on a desk-top and update there, and could also set an interest rate, compounding period, etc.

I forget the name of the one we used, but I just looked and there were 10-12 that popped up right away.

[8foot7]

Timely thread for me. Son and I were discussing the ultra-low interest rates now; he was demoralized to see that even if he had $10,000 in a bank savings account he'd be earning less interest per year than he earns mowing one lawn on a Saturday. It was a learning opportunity for him and I also wanted to ensure his takeaway was not that saving wouldn't be rewarded so he should just blow his money, but rather he needed to seek a balance of risk and return.

So just yesterday I opened up a custodial account at Schwab for my son. We deposited his Halloween gift check from his grandparents through the mobile capture function on the app, and he bought a $5 stock slice of Hershey. No fees, no minimums. Schwab will even send us checks, although no debit card, but he's 11 and doesn't need a card.

Given our income. we will almost certainly not qualify for financial aid in college so I have very little concern in using a custodial account and over the next 8-10 years, while I hope the sum of the funds in his account grows to a level significant for him as a young adult, it should have little effect on us.

[Outer Marker]

So just yesterday I opened up a custodial account at Schwab for my son. We deposited his Halloween gift check from his grandparents through the mobile capture function on the app, and he bought a $5 stock slice of Hershey. No fees, no minimums. Schwab will even send us checks, although no debit card, but he's 11 and doesn't need a card.

This is a great idea. Savings accounts are super boring and pay nothing. I know my grandparents gave me some savings bonds at some point, but they were stuck in a drawer somewhere and may have even been forgotten and never cashed. I can't remember. If you asked your kids to pick $5 slices of their 5 favorite companies, they would have interest and skin in the game with the financial markets. Admittedly, maybe introducing behavioral error with individual stocks, but indexes are boring too. Much more fun to see how you did with Hershey and Facebook at the end of the year.