11 Ways To Secure Your Child’s Financial Future

As a parent, one of the essential things you need to do for your child is prepare them for their financial future and build a solid financial foundation. It’s never too early to start, no matter how small. Studies reveal that about 45% of parents gave their children financial support, especially during the COVID-19 pandemic. Such statistics highlight the need to secure your child’s financial future to enable them to stand on their own and be prepared for unforeseen circumstances. Here are some practical ways to build a financial future for your kids. 

1. Open an education savings account

You don’t need to wait till your child gets older before opening an education savings account for them. You can start early enough to prepare for their college tuition. Most education savings accounts (ESAs) allow you to deposit up to $2,000 yearly, and the funds can grow tax-deferred. An added benefit is that you can also use these funds for your child’s elementary and secondary school expenses if the need arises. Some excellent examples of educational savings accounts for your child are the 529 plan and the Coverdell ESA. They both have their advantages, and you can choose based on your preferences and goals. 

2. Get life insurance

Statistics reveal that about 70% of households with minors will find it challenging to pay bills if the main salary earner were to pass away. Therefore, it’s vital to safeguard your child’s financial future by getting life insurance. One factor that deters people from getting life insurance is the perceived cost. However, taking a life insurance policy could yield significant benefits for your child. It would help if you researched thoroughly and made inquiries before settling on a life insurance package to make the best decision. Remember to keep your beneficiary information up to date, especially after significant events such as when you have a child or a divorce. 

3. Update your will

Although drafting a will is a reality many don’t like to think about, it’s a prudent way to secure your child’s financial future. It’s best to ensure that your will is always up to date. Aside from drafting a will, you’ll also need to appoint a guardian who’ll take care of your child in your absence and a property guardian who’ll be in charge of your estate until your child is of age. You can hire an attorney to make the process straightforward for you. 

4. Have financial discussions with your kids

Leaving financial literacy to your child’s school may not always yield the best results as they may not be as thorough and personal as you can be as a parent. Therefore, you can start talking to your child about money early, so they can be financially literate and make sound financial decisions. You can find fun ways to do this and make the lessons practical for them, such as occasionally rewarding them for doing house chores. It’s also a great opportunity to teach them the impact of borrowing. You can start by lending them some money and discussing how much they should pay each month. You can always give them back the money they pay after, so they can save. They would have learned some practical lessons and also earned some extra money. 

You can also encourage them to save towards something they want so you can support them halfway, instead of giving them the entire amount when they need it. Financial discussions will enable you to explain complicated financial jargon in simpler terms. Imparting financial knowledge to your child will allow you to listen to their thoughts about money and identify what you can do to help. 

5. Open a custodial account

A custodial account is straightforward and can prove beneficial to your child. It’s a savings account in your child’s name, and they can easily access it when they turn 18 or 21, depending on where you opened the account. However, after the first $950, the money in the account is taxable, which could be a disadvantage. You can put money from your child’s savings, cash gifts they receive, any allowance they earn, etc., into this account. The primary benefit of this account is that your child has complete control immediately when they’re of age. As such, it’s essential to teach your child healthy financial habits, so they don’t wrongly spend the money you’ve saved for them over the years. 

6. Plan for your retirement

Believe it or not, planning for your retirement can go a long way in impacting your child’s financial future. The average social security benefits available often don’t amount to much. Therefore, it would help if you were intentionally saving for your retirement to be financially independent even when you stop working. This way, your child won’t have to worry too much about your finances in your old age, so they can also channel their finances into other areas and save some. It’s better to start as early as possible so your money can grow. You can get started by designating a part of your paycheck into your retirement savings account monthly. 

7. Teach them to budget

Having a budget will guide your child in monitoring their spending habits and identifying which areas take up most of their money. You can make it easier for them to build this habit from a tender age by finding fun and practical ways. For instance, when you go grocery shopping with them, you can give them a little money and ask them to see what they can buy with the amount they have. You can also get them a fun notebook in which they can write down their budget to track their spending. Doing this will allow them to prepare for more significant financial decisions in the future. It’ll also help them be more independent when they eventually leave home. 

8. Pay your debts

Waiting for your debts to accumulate could negatively impact your child’s financial future. So it’s best to start paying any money you owe, no matter how small, so they don’t become a burden on you and your family later on. Doing this will take you a step closer to financial freedom. If you have several debts to pay, you can make things easier and more organized by consolidating your debts. This step requires you to merge all your debts into one account to focus on clearing them by making single monthly payments to cover them. 

9. Set a good example

Another great way to prepare your child for a solid financial future is by setting a good example for them to follow. If you teach your child one thing, but they see you doing something else, they may not place much premium on the financial discussions you have with them. So when you model good saving and spending habits, it’ll be easier for your child to remember and understand the value of spending wisely and making prudent financial decisions. It will also allow them to ask any questions they may have, so you can teach them some practical and valuable financial lessons that will significantly impact their financial future. 

10. Teach them the value of hard work

Teaching your child the value of hard work will help equip them with some principles and skills they need to prepare for a secure financial future. It’ll also make them grow into responsible adults who’ll be conscious of their spending. Occasionally rewarding them with some money when they do their house chores will help them appreciate money more and learn the importance of working for what you want. You can also encourage them to find a part-time job or business idea doing something they love, such as selling lemonade, hosting a garage sale, mowing the lawn, etc. They can earn extra money from this and put it in their piggy bank or savings account. They’ll also feel proud of their achievements and be encouraged to do more. 

11. Have short and long-term investment goals

Dividing your financial goals for your child into short and long-term goals will guide you in the decisions you need to take to help you secure their financial future. Short-term goals can consist of the money you may need to spend within a year or two for your child, such as extra-curricular activities, school fees, etc. Long-term goals involve milestones later in your child’s life, such as going to university, schooling abroad, getting married, etc. These goals will help you invest properly towards them so you’re always prepared and your child can be financially comfortable. These goals also help you know which kinds of investments to consider. For instance, you can consider equity investments that are moderately risky and yield good returns for your long-term goals. 

Building the right money habits in your child and putting financial measures in place will help secure their financial future and guide them in making the right decisions that will yield tangible results for their finances. These tips will help you start working towards building a solid financial future for your child.