Updated: Oct 27, 2021
By Jenna Sherman
Having children is generally expensive, to many parents' dismay. But parenting responsibilities don’t end at paying school fees and dental bills for braces. Planning for your and your children’s financial futures is complicated and wrought with emotion. Here are the four most crucial financial planning tips for moms and dads from Mother Wit.
1. Start a Savings Account (for Your Baby)
The earlier you begin saving in life, the better off you are later (especially in retirement), Debt.org confirms. And the rule applies to kids, too. You may want to open a savings account for children to cover college costs. Or, you may begin building a nest egg for your child to access once they become an adult.
Special savings accounts for college funding are also available. Overall, the best savings account for kids offers high yields and low or no account fees. But you may want to seek out a bank or credit union that provides financial education, too.
2. Teach Your Kids About Money
Opening a savings account — and involving your child in the process — is an excellent start. But teaching kids about money involves more than counting coins and depositing checks. Many financial planners want parents to think about their children’s futures without mom or dad. But it’s essential to plan for your child’s adult life as the focus, too.
Learning how to handle money, create and follow a budget, and understand credit cards and other fees and rates is vital. According to Forbes, the five most important money lessons for kids include:
● Delayed gratification, which helps kids plan ahead.
● Smart money choices, such as choosing where and when to spend money.
● Saving helps grow your money, like a college or other savings account. Using a compound interest calculator tool can help highlight why these figures matter.
● Considering college costs and how to plan for them.
● Understanding how credit works — and why it’s not always a good idea to get a credit card.
3. Use Estate-Planning Services
As a parent, you want to ensure that your family remains financially secure. For them, you may hold on to a well-paying job that you don’t particularly like or work long hours to grow a business. But you can only do so much. And since no one has a crystal ball, you need to prepare for a future without you or your partner. Estate planning is a contingency plan for how your finances will trickle down to your children.
Your estate plan should consider your children, the size of your estate (their inheritance), any charity donations, and business ownership. One highlight of an estate plan — including a will — is that it lessens the likelihood that your children will have to deal with probate. Probate is a legal process that divides up property and settles your estate. In some cases, and depending on the state, probate can go on for a year or longer. A solid and legal estate plan helps expedite the process.
4. Make Sound Investments
Life insurance can deliver necessary benefits. Life insurance serves to financially support your family if you pass away unexpectedly, making it a crucial investment. A 20-year term life insurance policy is ideal for new parents since the payout can be used to cover their child’s college tuition or set them on a good financial path in early adulthood.
Real estate can also be a good investment — not just as a place for your family to live in but also as a source of passive income. Of course, to do this right, you don’t want to fall into the black hole of having mortgage payments that you can barely keep up with. There’s more than one way to lower your payments and interest rates — and have better mortgage terms overall. You can, for example, “buy down” the rate using by paying points. See how it works (and how much you can save) with this calculator.
For parents aiming to give their child a solid financial future, it helps to start as early as possible. And fortunately, not every financial planning tip requires big-money moves. Starting small and simple means your child will be ready to take on their own money responsibilities by the time they’re a young adult.
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