I still clearly recall stumbling into our financial advisor's office when I was carrying my first child to talk about the estimated expense of education for our unborn child. (In case you were wondering, a four-year private university costs roughly $600,000) After that, a protracted trip was made to our attorney's office to complete wills and testaments.
We adjusted our budget at home by computing the price per nappy by brand and the estimated costs of formula versus breastfeeding. Organizing the family's finances is frequently on pregnant parents' minds. But sooner than you may imagine, parents can have an impact on their child's financial destiny.
We discussed the top five financial decisions to make for your child with Raquel Curtis, the Boujee Banker, a former finance professional turned international finance and business coach.
Start Saving for College
It's never too early to begin, according to Curtis.
You can attain your savings goals over a longer period of time if you start early, which may reduce the need for excessive borrowing. She's correct, too. According to recent data, private university students borrow an average of $35,983 while college students at public universities borrow an average of $32,880.
A common choice for frugal parents saving for their child's college tuition is a 529 college savings plan. Benefits include withdrawals for educational expenditures and tax-free growth.
But Curtis cautions that there isn't a one-size-fits-all solution. "[I]t's important to research and take into account other savings plans as well," she adds, including custodial accounts like UTMA/UGMA or Coverdell Education Savings Accounts (ESAs). Every plan has its own benefits and restrictions, so it's critical to evaluate your unique financial situation and speak with a financial counselor to choose the one that will meet your needs.
Open Their Own Bank Account
Although this is a significant financial decision for your child, the best moment to make it depends on their particular maturity and readiness.
"Opening a checking account for your child can be a valuable financial lesson and an opportunity for them to learn about managing money," says Curtis, though she advises waiting until the child is in their early teens and using a joint checking account so you can keep an eye on things.
This gives you the chance to instruct children in responsible saving, spending, and budgeting. You can switch to a separate checking account just in their name as kids become more independent, giving them more freedom and responsibility, advises Curtis.
Build Credit
Up next? assisting your child in establishing credit.
As long as you have a good credit history and sound money management practices, Curtis advises that you "consider adding them as an authorized user on one of your credit cards." This can help them establish a credit history and teach them how to appropriately utilize credit cards.
Encourage your teen to open their own card (and use it appropriately) once they've mastered this. Remember to assist them in making payments on schedule and maintaining a low credit utilization ratio.
"Building good credit takes time, so it's important to start early and guide them through the process," says Curtis.
Protect Their Identity
Did you realize that every year, one in fifty kids has their identity stolen? Children already have all the personal data that con artists are interested in—birthdays, social security numbers, etc.—but most parents are unaware of this until their child is old enough to obtain their own bank or credit card.
Because of this, it's crucial to keep an eye on your child's credit as they become older to make sure nothing shady appears on their record. To automate this, you might also wish to use an identity protection provider. Lifelock provides identity security for my husband and me, and it was pretty simple to include our three and five-year-old children in our plan.
Introduce Investing
Starting in elementary school is when this can happen. "If they are old enough to understand video games, they are old enough to understand investing," claims Curtis.
She advised beginning by teaching them sight words alongside mutual funds, equities, and bonds. After that, go through the significance of saving and the idea of generating returns on investments. Help children comprehend the idea of risk and reward as well as the value of diversification, she continued.
She adds that it might be helpful for kids to talk about essential investing ideas like compounding returns and the advantages of beginning to save and invest early.
Get Life Insurance
Another significant financial decision parents should make for their children? Purchase life insurance. The standard recommendation from experts is 6% of your gross income plus an additional 1% for each dependent. It's crucial to designate a guardian and to have a current final will and testament.
Curtis concurs. "Life insurance can be a valuable tool to provide a financial safety net for your child and your family," the author argues. It can help with other financial obligations including paying for living expenses, a mortgage, and educational expenses... It is essential to have a comprehensive estate plan, which needs to include a will. In the event of your demise, a will specifies how your assets will be divided and who will be in charge of your child's welfare.
Despite the fact that I had to take several toilet breaks during our trip to our lawyer's office to finalize this, I recall feeling at ease as we left since I knew that if my husband and I were unable to care for our son (and later his younger sibling), family members would.
Sure, while you're knee-deep in diapers or potty training, teaching your young children about saving, investing, and compound interest might not be top of mind. However, the moment to begin having serious financial conversations with your children comes sooner than you might expect, just like with anything else in parenting. What is the phrase that we all despise? Of course, time flies when you're saving for college. The days are long, and the years are short.
