How to Prepare Kids Financially

TATI AMARE: Hello everyone we are back continuing our conversation with Ron Tallou, and we were right to start talking about normalizing these kinds of conversations so that people are more comfortable talking about them. In that process of sharing or talking, I feel like you learn more. So, tell us a little bit about that.

RON TALLOU OF TALLOU FINANCIAL

SERVICES: Just having the conversation on a regular basis and don't be ashamed of where you currently are financially.

Some don't understand people are always moving up and down economically in different brackets and different financial situations, so don't be scared to tell people what you got going on. If you're like you don't know where to get started or if you feel like you're not saving as much as you should…if you're having that discussion on a regular basis with that small group, you're going to get different opinions and it's going to motivate you to get started. AMARE: I think so and I think shame is a big part of it. Shame to maybe confess you don't have enough saved. Or you're not making the kind of money you want to be making at this time.

TALLOU: Maybe you feel like you're not savvy enough. But that's why having that conversation with somebody, obviously, you're going to it with people you know that genuinely do care about you. So, there are obviously going to want you to succeed financially, and they're going to give you some good pointers on how to get started.

AMARE: You have to get started. You can't be successful at something you're not going to start.

TALLOU: Absolutely, what makes somebody a successful saver is just the consistency of doing it. It's not about having a very large income it's about just putting it away, being consistent with doing it. Because overtime, the shares that you purchase, the investments you make… they're going to appreciate.

AMARE: You just have to be disciplined.

Just do it, just do it. Now I have another question for you. Very interested in this one…savings options for kids? You say parents with small children should consider 529 college education plans. He has a four-year-old, so he is all ears right now. TALLOU: So, in my opinion a 529 is the best place somebody could save for their children to go to school down the road.

Think of a 529 like a retirement account is for a lot of people and their 401(k). So, with the 529 plan there is a very extensive list of funds you can pick off. From aggressive, to balanced, to more conservative. With those funds you can obviously always move them in or out. With the 529 plan you can contribute however you want whether it's a monthly or annual basis.

The money that goes in, it's going to earn interest over time, and it will. As long as the money is being applied toward educational purposes you can take that money out on a tax-free basis. So, think of your tuition, book, room and board, if you have to buy a laptop. As long as they money is being applied toward educational purposes you can take that money out on a tax-free basis.

AMARE: Is there a tax benefit to the parents when they do the saving?

TALLOU: Depending on what kind of plan.

If it is a Michigan state sponsored plan, they could save money on state taxes.

Now you can always go purchase a plan through a different state sponsor like let's say California or Virginia, but you wouldn't get the additional state tax deduction.

TALLOU: I think at the end of the day you have to ask yourself, you know, what do I want the money to be intended for? You can put the money away in traditional savings. Not the biggest fan of that because it just matches, you never earn any kind of interest on it and obviously we see inflation on it overtime. If you're just saving in cash in a regular savings account, it's not going to appreciate. The cost of everything is going to be much greater between them at age four than age eighteen. I always recommend putting that money for them in an investment account, that way it's going to be a bigger pile of money at

HOW TO PREPARE KIDS FINANCIALLY

Thursday, August 11, 2022 at 8:30 a.m.

the end of the day.

AMARE: Absolutely, and then of course if it's for school, you get the tax benefit plan that gives you that benefit here in Michigan, and it can be used for something else.

TALLOU: You know what, I have some parents who say what happens if they don't want to go to school? There are other accounts that you can open up just for them when they become older. But if your plan is I want to be able to satisfy the very large bill of tuition then 529 is probably the most ideal place. If you just want them to have money when they're 18, 20, 21 there are other investment accounts that you can open up for them.

AMARE: I definitely wouldn't give an 18or 21-year-old that cash. It wouldn't be there by the time they're 25.

TALLOU: The thing with the 529 plan… the parent or grandparent, whoever is setting it up…they're the actual owner. The children are just the beneficiary of it. So, if the kid is going to school, that's not their money to make a withdrawal out of. The most important thing parents should understand with a 529 plan is that the kid is just a beneficiary, the parents re the owners. If there are multiple kids in the house and the oldest one says hey, I'm not going to school, then you just change the beneficiary to another kid.

AMARE: Parents…you are covered on this. I like that you keep driving home the idea that parents stay in control of the savings account of this kind of account. The credit card, be joint owners on it, so you can still maintain some type of control, because let's be honest, you're not into your mid to late 20s before you know what you are going to be doing financially.

TALLOU: Exactly I wouldn't hand a kid a large amount of money. They are going to blow it on a lot of unnecessary things and it's like man you just wasted a good portion of years of savings.

AMARE: Years of savings and sacrifice.

TALLOU: If you didn't work hard for the money then you don't get tired for it AMARE: Right, it's one big circle. Well, this has been a great conversation. We thank you so much. Is there any other tidbit you would like to share with the audience? I always feel like there's more to talk about with money.

TALLOU: There's so much to talk about with money. If anyone has any questions, they can go to my website talloufinancial. com. There is a contact us section, would love to be as second set of eyes or answer any questions that you might have.

AMARE: This has been great, thank you.

TALLOU: The one last thing I will say is 18, 20, 21…whatever the age is, don't be afraid to lose a little money. Invest it, that's kind of how you really learn. Don't put any kind of money that is going to hurt you from losing a significant portion of it. But it is the reality of investing. It's not going to constantly go up. You will have those ups and downs with how things are going economically. Don't be afraid.

AMARE: Learn those lessons young. Its good to have a feeling like wait…what happened? Then it normalizes it in the future.

TALLOU: You have plenty of time as a young adult to recover from it.

AMARE: Time to recover. I like it. Ron, thank you so much for joining us. We appreciate you so much. Good advice.

TALLOU: Thank you.