You want the best for you children, not just while they are living under your roof but for long after they leave the nest as well. The years fly by, so it is important to have a plan in place to help teach and educate them in the ways of the world. Naturally, this involves a great deal of financial planning in order to ensure that they have the resources to be successful when they set out on their own. No parent likes to think about the day when their children leave home, but consider the following four simple ways to help prepare for your children’s financial futures.
College Planning Begins Now
Far too many young adults today are saddled with a lifetime of student loan debt. As a parent, you might not be able to afford the full cost of a college education today, particularly given the skyrocketing expenses for tuition, room, and board in some countries. That being said, you can begin planning now to pay for that education with a 529 tax advantaged savings plan. This will help provide much of the money your children will need when the time comes for them to go away to college, which means they will have to rely less on those pesky student loans. This will set them up for a bright beginning to their financial future as they will not be riddled with debt immediately upon graduation.
Open a Roth IRA
While teenagers do not generally think about retirement at their age, you can help show them that it is never too early to plan. In fact, as soon as your children begin to work you can help them open a Roth IRA and allow them to start seeing the value in investing. This is a great educational opportunity, as you can do this right alongside them. You can set them up with an account, help them make regular deposits that they are comfortable with, and then show them how they can monitor its progress.
A Roth IRA has several advantages at this stage in life as opposed to a traditional IRA. Since we are looking at a long time span before retirement, and your child likely does not earn enough to pay much in the way of taxes anyway, the tax-deferred status of a traditional IRA just does not make much sense. To take advantage of tax savings, it is much more valuable to contribute to a Roth IRA and have your children enjoy the tax-free status decades down the road when they begin drawing out of their retirement. With an estimated 4 in 10 Americans currently without any retirement savings to speak of, this is one of the best ways that you help prepare for your children’s financial future.
Help Supplement Their Savings with Bonds
To teach the value of diversification, consider savings bonds as a way to help supplement your children’s financial portfolio. While they may not offer the same type of interest as stocks or mutual funds, they continue to hold great value as a long-term investment. This is what you are aiming for, as you want your children to learn that some of their savings simply should not be touched for years. Savings bonds will help accomplish just that objective.
Open a Bank Account
As soon as your child begins to earn any money at all, whether from an allowance, cleaning up the neighbor’s yard, or their first job, you can open a savings account for them at the bank. Let them decide how much money to put away each time they get paid. Do not discount online banks either, as many offer accounts for children with very low fees attached. Your children can then access their account at any time and watch their savings grow over time. If you start this early enough, your children might just have enough saved up for rent or a down payment on a house once they get ready to move out.
The Future is Now
As you can imagine, there are many ways to plan for your children’s financial future. The key is to begin today. Do not wait, as those precious years will fly by and you can wake up one day realizing that you have missed your opportunity. Financial education is a gift that your children will grow up to appreciate. Starting with these four strategies can help you rest easier at night knowing that you have done what you can to help the financial future of your children be bright.