The Three Best Financial Moves You Can Make for Your Child

My grandmother was a young bride during the Great Depression, and some of the frugality she practiced during that time never left her. When I was young, I routinely saw her washing aluminum foil and plastic bags for reuse.

She and my grandfather lived in a trailer park during retirement to minimize their monthly expenses, and when my grandpa died at 88 and later my grandma at 90, they still had a enough money left to give a small inheritance to their nine children.

That type of sacrifice and money management is seen less often nowadays.

In fact, we routinely hear about college students who graduate with thousands of dollars in both student loan and credit card debt and struggle to find a job and pay their bills.

Yet, as a parent, there are three important things you can do for your teen to put them on the financial track that will lead to a life of prosperity.

Three Best Financial Moves You Can Make for Your Child

1) Open a Roth IRA for your child.

If your teen has income (as documented by a W-2 or a filed tax return if they do work such as babysitting or lawn mowing that does not produce a W-2), they can open a Roth IRA and deposit up to the maximum of their earnings for the year or up to the $5,000 yearly limit, whichever is less.

You may need to sign up to be the guardian of the account because not all brokerage firms will open a Roth IRA for a minor, but it is legally acceptable for working teens to open Roth IRAs.

Because teens have the benefit of compound interest on their side, they can fairly easily retire millionaires with relatively modest contributions.

Consider a 16 year old who contributes $2,000 to a Roth IRA every year until she retires at age 65.  Assuming an 8% rate of return and a 25% tax bracket (an average over the course of her earning years), she will ultimately have contributed $98,000, but she will retire with $1.45 million.  If she could handle $3,000 a year contributions for the same amount of time, she would retire with $1.7 million (Roth IRA Calculator)

2) Gift them with your good credit score.

financial moves for your children

These financial moves for you kids can help them achieve financial independence.

As adults, we spend years trying to get a high credit score so we can not only qualify for car loans and mortgages but get the best interest rate available for those loans.

Credit scores can even be used in the hiring process.

A good credit score is important in almost every area of your financial life, and if it is not good, it can severely limit your financial life.

Instead of hoping your kids can leave college with a high credit score, you can gift them yours.


Simply add them as authorized users to your credit cards.

Suze Orman talks about this strategy frequently and explained the process in Business Today when she was interviewed by Caroline Hanamirian:

One of the easiest ways to establish credit, believe it or not, is when you are younger, when you are 12, 13, 14, if your parents have good FICO scores, if your parents are responsible, if your parents simply added you on – at that time – to all of their cards as an authorized user, they don’t have to give you a card, they don’t have to let you know that they did that, then their FICO scores would become your FICO scores. You would establish credit based on their history.

With this strategy, you don’t have to take any chances that your children will ruin your credit.

You simply add them as authorized users early in their teen years and then take them off when they go to college, without ever letting them use your card, and they will enter adulthood with your good credit rating.

3) Educate them on student loan debt.

Too many of today’s college students eagerly sign up for all of the student loans that are offered to them.  They then find themselves so in debt when they leave college that they struggle to pay the monthly minimums.  They also can’t make the basic financial moves generations before them did in their late 20s or early 30s such as getting married, buying a house and having children.

There are excellent calculators online that show students how much they will be required to repay monthly based on their loan debt and how much income they would need to support that level of debt.

However, before you even get to that point with your child, it is well worth it to explore options to make college more reasonable such as attending a community college first or choosing an in-state college that will have more reasonable tuition and fee expenses.

Once they are at college, make sure to teach them strategies for lowering their college costs such as having a roommate, finding unconventional housing arrangements, buying their textbooks at bargain prices, and cutting living expenses.

Of course, ideally they have already learned some of these strategies by watching you manage money as they were growing up.

It’s up to you and your kids

Implementing these three financial strategies can lead your child on the path to wealth.

Of course, they are ultimately responsible for their own financial actions and decisions, but you can start them off on the right track to financial freedom, which will give them a financially strong starting point for the rest of their lives.

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Published or updated August 15, 2014.


  1. Opening up a roth for a 16 year old also teaches them to be financially responsible. It teaches them early on the importance of putting money towards the future.

  2. I did all your suggestions and I even gave them my credit card when they went to college as a back-up. They entered college at 17 years old, so they could not get a card on their own. They never abused it. They are successful adults now.

  3. Jenna, Adaptu Community Manager says:

    I wish I would have known about Roth IRA’s when I was in high school could have been 8 years ahead of where I am now!

  4. Actually, number 2 is a myth. You cannot build credit by being an authorized user on an account. The only way is to be a joint owner on the account, and minors cannot be joint owners on credit cards.

  5. Who can earn 8% on their investments? Please let me know. I have money for you to invest.

  6. Great points to consider before your teen leaves home! It is important to remember that teens don’t just magically learn how to manage money. It takes practice and guidance. Kids and young teens need to practice taking care of their money while they are young and the consequences are minor. Learning to make smart saving choices and avoiding impulse purchases can lead to better money management skills as adults.

  7. These are fantastic suggestions. My parents were never able to open a ROTH Ira for any of us. But it is something I plan to do for my children. It’s a great way to contribute to either their college or future wedding fund.

  8. I added a comment yesterday and it wasn’t published. It was not spam, it was a good comment that added to the discussion so I am just wondering why? If you do respond, above e-mail is best, thanks!

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