Get kids set to invest with custodial accounts

During my late teens, my mom handed me two worn, blue passport-size books with details of my custodial investment accounts.

I had no clue what to do with them, but it didn't matter, because the accounts were empty anyway. Perhaps for the best, because I'm almost certain my assets wouldn't have stood a chance.

I am now a mother, have opened a custodial account for my 4-year-old son and often think about how I can prepare him to take control of his investments in the future.

Preparation begins as early as possible when it comes to teaching your kids about money, says Cristina Livadary, a certified financial planner and co-founder of Mana Financial Life Design in Marina Del Rey, Calif. No matter your child's age, you can start by talking openly about finances and sharing your values around money.

"One of my favorite things is taking the dollars and really splitting them up in ways that are really aligned to values," says Livadary. "So, let's say you get $3 a week — $1 for giving, another dollar is for saving and the other dollar you get to spend."

A custodial brokerage account is an investing account opened by a parent or guardian for a minor until they reach the age of majority.

If your child has a job with taxable income, you could also help them open a custodial IRA or Roth IRA.

Michael Costello, a retired consumer products executive based in Miami, and a parent of three, says he prepared his now-grown kids to manage their custodial accounts by teaching them about budgeting and saving early. He also let them view their investment accounts and watch them grow, and he facilitated investing discussions with them.

"We ended up having a lot of conversations about why do you do long-term holding? What should you look at? What are ETFs versus regular stocks? What do bonds do?" he says.

Teaching his kids about exchange-traded funds and other assets made him confident about them having access to the custodial accounts when they turned 18.

Since custodial accounts are brokerage accounts that can be tapped into any time, it's important kids view their investments as long-term money that can buy them flexibility and options in the future.