It’s no surprise that our children are our top priority. As parents, we do our best to make sure all of our children’s needs are met. We encourage healthy food, proper manners and want the best for them whenever possible. Unfortunately, while we are working hard to ensure they have all they need right now, we sometimes forget to look to the future; and the future isn’t very far away.
educationSo, how can you as a parent invest in your children to improve the odds of success once they become fledgling adults? Here are two of the most important investments you can make in your children to ensure a solid foundation in their growth to adulthood.
Save For Their Education.
There are a lot of options when it comes to saving money, and while the best place to put your money is subjective, the most significant step you can make is just to start. A standard savings account is an easily attainable option, and you likely already have one, so it’s convenient. The trouble with many standard savings accounts, however, is that they don’t earn interest (or very little interest) so your money won’t grow more than your contributions. Also, it’s recommended to keep your child’s education savings separate from the family savings account to avoid spending it when money gets tight.
A high-yield savings account, or money market account is a better savings vehicle than a standard savings account because the interest is usually much higher, and it compounds over time. Which means, the sooner you get started, the better. These accounts work similar to a standard savings account, except they sometimes require a minimum deposit and the number of monthly withdrawals is limited.
Another savings option is a 529 savings plan. The 529 savings plan is geared specifically for higher education savings and contributions are made with after-tax dollars. The great thing about a 529 plan is that not only does your savings earn interest, but when you withdraw that money for eligible expenses, it is tax-free. Additionally, depending on your state of residence, you may get a state tax deduction. However, if you use your savings for anything other than qualified higher education expenses, you will be penalized 10 percent. The lack of flexibility in using funds is one of the drawbacks of a 529 plan and, if you’re not sure at least one of your children will attend college (they may prefer to study a trade for example), then a 529 savings plan may not be right for you.
moneyNo matter where you choose to save your money, rest assured that creating a savings account of any kind is a good idea, and you don’t need to save alone; encourage family members to make donations to the account for special occasions rather than buying gifts that your kids don’t need.
Teach Them To Master Money.
Today more than in generations past, children and teenagers have more access to more money. Larger allowances and fingertip technology make it easier to find opportunities to earn. Children are developing spending patterns at younger and younger ages, and while the biggest influence comes from parents and guardians, they are also influenced by many other things including, school, friends, and the things they see on tv. Let’s face it, most outside influences aren’t all that great and often advertising, and society, in general, encourages mindless spending. That’s why it’s essential to take an active role in teaching them to save, budget, and invest.
Money management should be taught at an age-appropriate level and can begin early by starting a money jar or piggy bank. It’s as simple as creating chores and opportunities for them to make money and encouraging them to save it.
Once they have made the decision to buy something with their savings, take them to the store and help them study their options. Discuss what they could save buying a less expensive item or something comparable from a thrift store or online. If they have their eye on something that is more money than they have, encourage them to keep saving (do not advance them the money). Teach them to use their critical thinking skills to decide if it’s worth buying or waiting. Allow them to make the decision without pressure and accompany them to the register as they make their purchase or praise them if they decide to continue saving or find a less expensive item.
As they grow older, set them up with a savings account that earns interest. Encourage them to split their allowance into spend and save portions. Show them how to make and view deposits and withdrawals and discuss the amount of interest they are earning with their savings. Take this opportunity to teach them about compound interest and how money grows when you start saving early. At this stage, you can even encourage more saving by offering a small match amount for every dollar they save.
Once they have mastered a savings account and are a little older, include a checking account with a debit card. Make sure to get an account that will reject a purchase if there are no funds, to avoid overdraft fees. Teach them to balance their checking account and discuss how to prioritize needs and wants. By now, they should have a firm grasp on spending and saving, so it’s time to encourage them to start an often-overlooked money management skill; charitable contributions. Find charities and causes dear to their heart and encourage them to give a portion of their earnings. This will make them feel good about doing good and build their self-esteem.
Teaching your children how to manage their personal budgets is imperative, but let’s not forget that these kids will one day grow up and maintain a household. For that reason, we recommend that you not only teach them to manage their personal money but when they are old enough, allow them to be involved in the household money management. Show them the household budget, and what you have coming in and going out. Show them how you budget and balance your accounts. Allow them to pay some bills. Just as you teach your children to do household chores, in preparation of their independent living, it’s important to show them the financial running of a household.
While there’s no doubt that saving for your children’s education and teaching them about money management are strong actions that will give them a strong start, make sure you take stock of your own financial health first. Before investing in your children’s education, your debt should be paid down, and you should have a sufficient emergency savings fund. After all, as the old saying goes, be sure to put on your own oxygen mask before helping others.