Monthly child tax credit payments have arrived, offering 35 million U.S. families hundreds, and potentially thousands, of dollars through the end of this year.
A one-year expansion of the credit, included in the huge COVID rescue bill President Joe Biden signed in March, is providing couples earning less than $150,000 — $75,000 for a single earner — $250 a month from July to December for each child between ages 6 and 17. For kids under 6, the monthly payout is $300.
For eligible but better-off households who may not need the funds to pay down debt or deal with household essentials, the influx of cash offers an opportunity to teach children about managing money.
Here are a few ways to get the most from your family's child tax credit cash.
1. Buy savings bonds
Savings bonds are excellent gifts for kids, especially younger ones who won’t be tempted to cash them in any time soon.
Bonds are essentially like loans you give the U.S. government. They can be redeemed any time after 12 months, but cashing them in too soon can lose you a significant chunk of interest or even cost you a penalty.
Series EE or I savings bonds will earn interest for up to 30 years. You can buy them, in your child’s name, online at TreasuryDirect.gov.
2. Get the kids a share of stock or an investment account
Stock from a big-name company is a gift that can grow. And there’s no better way to teach kids about investing than by making them shareholders themselves.
Are your kids obsessed with Frozen? Buy them stock in Disney. Or maybe you can’t drag them off the computer at bedtime. You can buy them stock in Roblox, or maybe Nintendo.
And if you want to encourage a life-long passion for investing, setting up an account with a kid-friendly investing service is an easy way to get them sending their spare change off to work on Wall Street.
3. Give children their own debit cards
Another great way to teach your kids about managing money is to set them up with their own debit card.
You'll want it to be a card you'll oversee — sort of a debit card with training wheels.
One debit card for children can be controlled by parents through an app. You can set up the card to automate allowance payments, establish parent-paid interest rates or assign chores to help your kids manage some early income.
4. Open a savings account
Piggy banks are fun, but your kids’ savings aren’t doing anything for them sitting on the shelf. A savings account can not only help you teach them how banking works, but it also puts the funds to work.
What you should look for is an online savings account that has a higher interest rate. Then, together you can come up with some savings goals — like for a new video game console, bike or art supplies.
While your kids are still young, you’ll probably have to sign on as a co-owner of the account. But once they’re mature enough to take control, you can transfer it over to them to manage.
5. Start a college savings fund
It may take a few years (or decades), but your children will eventually thank you for setting up a college savings fund for them.
Opening and contributing to a 529 college savings plan will help set them on the right track for their future — and help offset the stress of paying for higher education.
These plans are offered by states and also boast certain tax advantages. You can either save and invest a pile of money for your child’s higher education or prepay for tuition at a participating school.
6. Put together a thank-you package
Have your children’s teachers been working double-time over the last year to make the challenges of the pandemic a little easier for your kids? Or maybe Grandma and Grandpa have been helping you out with child care so you could continue to work?
If someone in your child's life deserves a special shout-out, you can use some of the child credit money to provide a lesson on expressing gratitude.
When you’re shopping around for the right gift, stretch your dollars as far as possible online by downloading a free browser extension that automatically scours for better deals and coupons before you click "buy."
7. Make donations
Has your family held up fine throughout the pandemic? Others have not fared well, with nearly 11 million children living in poverty across the country.
The child tax credit payments are a good opportunity to teach your young ones about giving to those in need.
Get your kids involved by having them help pick a charity for donating some funds, based on their interests or age group. Your household should be able to claim these donations when you file your taxes next year.
8. Spend on something fun
After all the lessons on spending money responsibly, saving and investing, why not give your kids a little to spend for fun?
Maybe they want a new pair of running shoes or a family-friendly board game. Whatever it is, letting your kids pick how they spend some of their cash can help them feel empowered and mature.
If they already have plenty of spending money, maybe set the funds aside to use later for booking a relaxing beach vacation that the whole family can enjoy after the stress of the pandemic.
9. Buy life insurance
One of the best things you can do for your kids is to make sure they’ll be taken care of if anything were to happen to you.
Using your funds to buy an affordable life insurance policy will give your family financial protection and give you some peace of mind.
A limited-time term life policy can provide money to pay off the mortgage and send your kids to college, if you were out of the picture. A lifetime permanent life insurance policy can build up "cash value" that your children may be able to use when they're grown up.