Having a baby or adopting a child to grow your family is one of the most fulfilling decisions you can make.
And it’s never too early to start teaching your kids about financial literacy — or planning for higher education costs.
Household discussions on saving, investing, responsible spending, and how to develop money management skills can help ensure the next generation starts out strong. But like with estate planning, many people feel reluctant to discuss such matters with their children, no matter how old they are.
Working together on a financial plan for schooling, a first car, travel, or other goals can be highly rewarding. Let’s explore some topics for conversation and how to proceed as a team.
The Future is Now
If you’ve recently had a child or are expecting a new addition soon, congratulations! Now is the perfect time to meet with a skilled and experienced advisor who can guide you through the process of structuring your life insurance policies and other crucial moves for securing your financial stability.
With the rising costs of tuition and living expenses, it’s wise to start saving as soon as possible for your child’s future needs. Thankfully, parents today have an array of options available for maximizing their savings potential.
One of the most popular is a 529 plan, also known as a qualified tuition program. This is a tax-advantaged college savings account that can be used for K-12 as well as post-secondary and post-grad education, trade schools, and apprenticeship programs.
529 rules, fees, and regulations vary from state to state, so talk with your financial planner to find out which program is best for your situation. Another advantage of taking this route is that beginning in January 2024, unspent 529 funds can be transferred to a Roth IRA account for your child or other family members.
Teach Them Well
Kids start learning from the moment they’re born, so why not set a good example for them right from the beginning? Experts say that by the age of 7, a child grasps the basics of counting, exchange, and differences in currency.
Once your brood understands how to buy the things they want with money, they’ll want more of it. Now it’s time to explain how to earn money and the concept of saving up to purchase something that costs more than what they have at the moment.
The FDIC offers a host of age-appropriate lessons, coloring books, and other activities designed to educate kids on topics like setting goals and prioritizing buying decisions, as well as their Money Smart for Young Adults program for youth aged 12-20.
It’s also best to set a good example by practicing smart money habits of your own. When your kids see you saving for a rainy day, investing wisely for retirement, and spending responsibly, they’ll intuitively learn valuable lessons on how to manage their finances.
Joint bank accounts can be established especially for children and teens to teach them about using their cards to buy things, how to budget their allowance or earned funds, and how to avoid overdrawing.
It’s also vital to talk about new fintech such as online investing, payment apps, and cryptocurrency. As soon as a child has an internet-enabled smartphone, they’ll have access to a mindboggling array of tools that could help them learn both good habits and risky behaviors.
Giving your kids a strong foundation in financial literacy will help ensure their success later in life.
Don’t Be Afraid to Discuss Debt
An Ohio State study showed that some 70% of college students are so stressed out about money that it can affect their performance in school. This chronic money shortage leads many students to take out additional loans or rely on credit cards, which can quickly add up to a heavy debt burden.
Young adults who fall into this hole can have a host of problems later when it comes to student loans and credit card debt.
A lower credit score leads to paying more interest charges, difficulty qualifying for a car loan or apartment rental agreement, and in some cases, missing out on certain employment opportunities.
Many consumers carry a depressingly high amount of college loans far into adulthood. As tuition and the cost of living increase, high school students are facing a stark reality upon graduation. A growing number of grads are choosing to put off higher ed and join the workforce for a while, only go part-time and live at home, or explore an apprenticeship toward a lucrative career in the trades.
Unfortunately, life happens, and sometimes getting into debt is unavoidable, and it can feel like you’ll never be able to pay it off. But there are steps you can take to create a plan and watch your debt dwindle by the month — it just takes determination and perseverance.
Find the Right Path
There are many financial decisions new parents should make as soon as possible, which can be part of your comprehensive estate planning process.
As your children get older, it’s critical to start educating them about money management. Kids that learn early the importance of hard work, saving, and spending wisely have a better chance of accumulating wealth later in life.
Your family will benefit immensely by partnering with an experienced and highly knowledgeable financial professional who can help you develop a strategy for planning for the future and funding schooling and other expenses for your child. Reach out today!