Among the most rewarding gifts of parenthood is to see your child grow up with sound financial habits that empower them to actualize their dreams. This may be especially true if you’ve had to face many money challenges in your life because you know first-hand how debt and bad credit impacts your life. The good news is that there are several positive steps that you can take to financially secure your child’s future. Here are five easy things you can do.
1. Financial Literacy
It would be best to begin teaching your child financial literacy as soon as they have basic comprehension skills. Unfortunately, many parents wait until high school, but you can start when they’re only five or six. Begin by talking about where your money comes from and what you must do with it each month.
At an early age, they can already understand the concept of saving money. For instance, let’s say your child wants a particular toy. Then, incentivize saving by suggesting that you’ll contribute the balance if they save half of the price. Again, your goal is to help them develop a healthy habit of saving money.
Learning How to Budget
As your children get older, you can involve them in the annual budget process. You can ask them what items they need, how much it will cost, encourage them to find the best prices, and help them identify the difference between needs and wants. A key strategy to financially secure your child’s future is to emphasize the importance of paying for items with cash rather than a credit card.
2. Teach Your Child How to Invest
The great thing about investing is that you don’t have to be rich to start. You can start securing your child’s financial future at an early age by opening a mutual fund. First, work with a professional investment manager to guide you to the best funds that match your investment goals. Then, as your child matures, involve them in selecting stocks, tracking stock performance, and help them learn how to analyze reports. After that, it’ll be exciting to watch their money grow.
By the way, you should start investing money for your child’s future as soon as you can after birth. If you begin modestly, according to your budget, you’ll have quite a bit saved up to cover the costs of higher education, marriage, and perhaps their first home.
3. 529 College Plan
A 529 College Savings Plan is a smart way to invest money to pay college tuition, k-12 private tuition, apprenticeship programs, and student loan repayments.The plan is similar to your Roth IRA in that your contributions grow tax-free and can be withdrawn without tax penalty if used to pay for a qualified education expense. Many states also offer income tax deductions for 529 College Savings Plans, so you might want to look into this.
4. Model Good Money Habits
Children learn by what they observe much more than by what you tell them. So the best way to financially secure your child’s future is to model good money habits.
5. Reduce Your Debt
You may not be thinking about it now, but if something should happen and you leave behind a lot of debt, your child will be burdened with the responsibility of paying it off. Furthermore, freeing up your monthly cash flow means that you’ll have money to do fun things with your child.
The best way to financially secure your child’s future is to start early.
- As soon as your child can grasp basic concepts, begin teaching basic financial literacy.
- Include your child in your financial discussions, so they observe the process you go through to avoid debt and manage the family money.
- As they get older, provide increasing levels of financial responsibility.
- Model good financial management skills because, more than anything, your child learns from what you do more than from what you say.