Besides, much like winning the lottery, the sudden control of a decent portion of money can cause problems for a young adult who is not quite ready for the responsibilities it carries. “Easy money” is easily spent, lost or given away, and once it disappears, it will disappear. As a result, it is important to teach and train good money management skills instead of just handing over cash.
Also, investment income belonging to a child is subject to taxation. While the first $ 1,050 is tax-free, the next $ 1,050 is taxed at the child’s rate, and anything above that is taxed at the parent’s rate. This can add to the complexity of the records to family tax monitoring and reporting, and is another thing to be aware of.
Start doing that
Lastly, if an early investment helps your child understand how to be a good financial manager and helps him or her to start an independent life without large debt anchors, it can pay off. Strong financial skills will serve your child well throughout his life. Read also : Tax return vs. tax refund: How they’re different, what’s changed for 2021. And as a bonus, a single investment of $ 1,000 at age 13 could potentially be worth over $ 170,000 by the time a child reaches retirement age. It’s an amazing start to the nest, and is greatly facilitated by starting early.
