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Banking on the future

Monetary b’nai mitzvah gifts offer children the opportunity to learn about saving and spending

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The bar or bat mitzvah may be over, but the decisions don’t necessarily end there. Children who receive large sums of money for their bar or bat mitzvah are faced with decisions regarding what to do with it, which may end up being the first major financial decision of their lives. Needless to say, there are many options for them – and their parents – to consider. 

David Mikolay, vice president and Akron-Canton market regional manager at CFBank, says one thing to remember is that “saving is good” when trying to decide whether the money should go into a savings account or something more long-term, such as a CD (certificate of deposit). 

“Any way to save is good,” says Mikolay, whose office is in Fairlawn. “Saving is good regardless (of the method used). If it’s going to be an account where you need access (to the money), it’s going to be a savings account. If it’s a lump sum of money you’re just putting away, it’s going to be a CD.”

However, there are options outside of savings accounts and CDs. Karen S. Cohen, a certified public accountant and trust officer at Home Savings Premier Wealth Management in Canfield, says her favorite savings vehicle is a Sec. 529-qualified state tuition plan.

“A 529 plan is often set up by a grandparent or a parent to save for a child’s education, but a child can fund his or her own account with money received as a gift,” Cohen says. “What makes a 529 plan more attractive than a savings account or certificate of deposit is that, in the worst-case scenario, the tax on the earnings in the plan is deferred, and in the optimal situation, the earnings are never taxed. Encouraging a child to put money into a 529 plan is a way for parents to impart their values to the child about the importance of education, as well as the importance of making saving a life-long habit.”

Cohen says parents should not wait until their children are 12 or 13 to have the first discussion about saving and spending, but when the time comes, she encourages parents to include their children in the discussion regarding what to do with the money.

“I do think a parent should be somewhat firm about sticking to the plan once it is agreed upon with the child,” she says. “I also think the child should have freedom in choosing how (he or she) should spend the money that is designated for spending now. Even bad choices made with a relatively small amount of money can provide good life lessons.”

Mikolay says he often works with parents who, in general, don’t discuss money. When they eventually do so, perhaps for a bar or bat mitzvah, it’s been his experience that different approaches work for different people. 

 “Money isn’t the only thing in life but it is an important aspect in life,” he says. “I have dealt with families for about 15 years now. … I think (the decision about how much to save and how much to spend) is up to the individual. I’d portion out a little bit for fun – they get the idea that they can use it and have their fun, but put a portion away for saving.”

Cohen agrees that the child should get to spend some of the money.

“I don’t think saving every dime enhances the life lesson about saving,” she says. “If saving is painful and requires too much sacrifice, it won’t be a lesson taken to heart for a lifetime.” 

She compared saving to a Halloween treat bag. 

“If you take the bag completely away from the child to save it and the child does not get to enjoy any of it now, or tomorrow, or this week, the lesson is not going to be met with much enthusiasm or success,” she says. “If a child is going to learn to balance immediate consumption with self-discipline and systematic, incremental achievement, perhaps there needs to be a little spending involved.”

-Ed Carroll 

This article appeared in the Fall/Winter 2017 issue of Bar•Bat Mitzvah.