If you have kids, or are considering having them, you’ve likely started thinking about what that will mean for your finances. But have you thought about how you can help your kids become prepared for their own financial future? There are plenty of things parents can do now to help set their kids down the right path financially. Here are a few.
1. Set up a College Savings Account
One of the most important things you can do is to consider how (and if) you’ll help them obtain a college education. An analysis of Labor Department statistics by the Economic Policy Institute found that in 2016, Americans with four-year college degrees made almost twice the average hourly wage compared to those without a degree. So a college degree is still important. However, you should never save for your child’s college at the expense of saving for your retirement. Instead, consider whether, and how much, you can responsibly save for both. (You can read this to help determine if a 529 college savings plan is the right avenue for you and this one about how much is enough when it comes to college savings.)
2. Have a Life Insurance Policy
Don’t think of a life insurance policy in terms of what would happen to your kid if you die. Consider it a way to ensure your child is taken care of in the future, no matter what happens to you. Talk to a certified financial planner if you aren’t sure where to start, or which option is best for you. (Or you can read this article that outlines seven essential documents to fill out.)
3. Put a Guardian in Your Will
Putting together a solid will so your child will be taken care of if something happens to you should be a top priority when estate planning. Picking the best guardian for your child is equally important. You can name two types of guardians — one to physically look after your child and one to look after their assets. Think seriously before simply naming your mom or best friend as your child’s guardian.
4. Open a Savings Account for Your Child
When it comes to helping kids become financially savvy, teaching them how to save — and why savings are important — is crucial. Your kid doesn’t have to be walking yet for you to open a savings account in their name. Ask your bank about a custodial savings account. Once your child is old enough for an allowance, you can discuss why everyone should have savings and how much to put away. Many experts say saving 20% of your income is a good way to build up a safety net.
5. Give Them an Allowance
Experts differ on whether giving kids an allowance helps them become financially savvy, how much to give and for what purpose (just to help them save, or in conjunction with chores, etc.). Research from T. Rowe Price, an investment management company, showed that children who receive an allowance are more likely to think they have a good understanding of basic financial topics than those who don’t get one. The important thing is to not give your kid an allowance and let him do with it what he will — you need to talk about money with your kid, as well. Discuss the importance of earning money and how to make it last.
6. Talk About Your Finances
Money is often a taboo subject in families, but it shouldn’t be. Consider talking to your kid about money early and often. A 2014 study from North Carolina State University and the University of Texas found that children pay close attention to issues related to money. Make sure you’re filling them in on the important facts. (View your free credit report snapshot on Credit.com to help see where you stand.)
7. Involve Them in (Certain) Financial Decisions
Your young child probably won’t help you save for a down payment on a new house or have detailed conversations about your debt-repayment plans. However, there’s no reason they can’t help put together a grocery list and come shop with you while you discuss how food costs money and the importance of family budgeting. Or perhaps on vacation, your kid can help decide how family money will be best spent on a few outings or can watch you fill up the gas tank to get an understanding of how much your road trip costs. Teach your kid early that it costs money to do fun things and how saving helps you achieve certain financial goals. You might be surprised how much your kid remembers later from your early — and repeated — money conversations in the future.