As parents, we want to be able to provide the world for our kids. At first, we just want them to succeed in the little things, like walking and talking. But as our kids grow up, we start teaching them more difficult things, such as discerning right from wrong, being confident in themselves, and identifying and discovering what makes them unique.
Regardless of the careers our children eventually pursue, we hope they attain financial security and have the confidence to make informed decisions when it comes to their money. One of the most challenging parts of parenthood is that we have to let our kids make their own choices. Sometimes they will make mistakes and sometimes they will succeed. They have to learn on their own, but we can teach them sound financial principles and model wise practices. Here are some ways you can set your children on the right path financially:
1. Take Care of Your Own Finances First
When you are on a plane, the flight attendants’ emergency instructions tell you to put on your oxygen mask first, then your children’s. When it comes to finances, you must take care of yourself first if you want to set your kids up for success. Otherwise, they may be stuck carrying the burden of taking care of you. Life is tough enough; you don’t need to add this unnecessary responsibility to your children’s lives.
Take the time to focus on your finances. Start by reviewing your life insurance policy. Do you have the appropriate amount of coverage to prevent your family from going into debt if you were to unexpectedly pass away? Have you had any changes in your family that would necessitate an update to your policy? The goal of life insurance is to protect your loved ones, so make sure your policy is in order.
Another piece to review is your estate plan. If you don’t have one, it may be time to implement a strategy to take care of all the details. Without a will, your estate faces probate, which can be a costly and timely process. Even if you already have a will, review it at least once every two or three years to make sure it’s accurate and up-to-date.
Lastly, don’t neglect your retirement planning because you’re saving for your child’s college education. Many parents choose to save more of their money for retirement to cover their cost of living in their retirement years. While these parents may put some money into their children’s college savings accounts from time to time, they realize that in order to provide for their family, they need to take care of themselves first. After all, if they don’t have enough saved up for retirement, the support they require in the future could ultimately fall on their children’s shoulders.
2. Help Them Save for Retirement
Just about any financial professional will tell you that it’s never too early to start saving for retirement. Many people think that they don’t have enough extra money to contribute to an IRA or 401(k), but $25 a month is still $25 more than $0. Every little bit makes a difference down the road, especially when you factor in compound interest.
As you approach retirement, you are probably noticing how much the retirement landscape has changed compared to your parents’ generation. It will be the same for your kids. Even Millennials worry about Social Security and whether it’ll be around in 50 years. You can help your kids start saving for retirement with something as simple as a Roth IRA.
Here’s how much of a difference it makes if your children start saving for retirement early: You open a Roth IRA for your 21-year-old son with $1250, contributing $100 per month. He continues to add $100 a month as time goes on. When he turns 65, he could have $366,000 (assuming a 7% annual return)! If he waits until 26 to open an account and contributes the same amount, he would have $100,000 less when he reaches 65.
Compound interest can be a young person’s greatest ally. Help your kids understand the importance of retirement planning at an early age.
3. Get Them Started With a Life Insurance Policy
Life insurance is part of a successful financial strategy at any age. Parents may choose to fund a life insurance policy on their children to take advantage of a lower premium. While parents don’t anticipate their children dying at a young age, generally speaking, policies are less expensive the earlier you purchase them because you have longevity and your health on your side.
Life insurance can also add protection to your children’s financial portfolio when they get older. With a permanent policy, the cash value built up in the life insurance can be used to subsidize the costs that they would pay when they get a larger policy. The money can even be used to fund long-term care insurance later in life. And, should the unfortunate happen, life insurance can offer some additional confidence and financial security.
4. Recruit Professional Help
Never underestimate the importance of introducing your kids to your financial advisor. An advisor can help your kids start investing and learn the importance of saving for retirement as early as possible.
The more financial knowledge your kids have, the better equipped they’ll be to start off on the right financial foot once they graduate college and enter the adult world. If you want more information on how to educate your children, or if you are concerned that your financial habits are not setting a solid example for your kids, I’d be happy to meet with you and your children to talk about money management and identify opportunities to start saving and investing early. To set up a meeting, call my office at 770.249.7424 or email me today at firstname.lastname@example.org. To learn more, download our free report, 12 Keys to a Successful Retirement Strategy today.