Merely teaching your child to get a job to earn money will only prep them to live from paycheck to paycheck. While there are plenty of books and online resources to teach them the value of a dollar and how to increase their earning potential over time, there are still plenty of actionable steps that parents will need to take to get their children on the right track for a successful future. Here are five to get a handle on immediately.
Purchase a Life Insurance Policy
Death is both a painful and uncomfortable topic to discuss, but it is also one of the only events that is guaranteed. When making this decision, you will have to understand the difference between term vs whole life policies. Term policies are cheaper and usually provide coverage for about 20-30 years, expiring if the policyholder lives beyond that period. Whole life policies, however, last for a lifetime and will build cash value over time. While your purchase will ultimately come down to your individual circumstances, purchasing a policy and naming your child as a beneficiary will leave them the finances they need to provide for themselves upon your passing.
Create a Savings Account for Them
Without a piggy bank of startup finances to sustain your child as they begin their journey, they will probably end up in debt before they’re 19th birthday due to student loans. Even if you only have the cash to cover the minimum contribution, it is best to open a savings account immediately so that you can continuously add to it before they are old enough to gain access to the money. Not to mention, a lot of savings accounts accrue interest over time, allowing your child to capitalize on your investment.
Start a College Fund
Life is far too unpredictable to rely on grants and scholarships to cover your child’s college tuition, and as the cost for higher education continues to rise, it is nearly impossible for families to afford the expense without falling into debt. This is why it is best to start early. While you can always store money in a shoebox until that special day comes, there are a few other ways to contribute to the fund in a more safe and responsible manner, like opening the following accounts:
- Coverdell education savings account
- UGMA account
- IRA account
- 529 plan
Each of those accounts has their own set of rules and regulations, so it will take some evaluating to figure out which one will be the best pick for your child’s future. But regardless of your decision, you will have one less issue to worry about post-high school graduation.
Teach Them About Investing
In today’s world, there are a multitude of ways to start investing with even a small contribution. But before you even get to that part, it is best to explain how investing works in age-appropriate terms and scenarios. Use their favorite manufacturer as an example to explain how anyone can become a partial owner by purchasing a stock within that company. And as the company makes money, so will they. Mock investment portfolios are perfect for visual context purposes. And to take matters a step further, you can even help them to either purchase a stock or open a custodial brokerage account where you can control the account and make contributions until they turn 18 or 21, depending on your state’s regulations.
Teach Them How to Budget
Teaching your kids how to budget before they actually have an income of their own might sound like an unnecessary step, but truth be told, the gems that you share now will carry them throughout adulthood. Children often mimic the money management habits of their parents, so it is important to teach your child how to take care of their expenses first, set aside money for a rainy day fund, and commit to getting by with a reasonable bit of leisure cash.
One of the worst things that we can do is let our children out of the nest without giving them the proper financial preparation that they need to thrive in adulthood. In the spirit of molding our children for success, we must take action today to build on their financial future instead of crippling their ability to sustain a prosperous lifestyle.
