As a parent, your love and dedication to your child’s future is unwavering. You want nothing more than to see them thrive and become successful, happy adults. Part of that journey includes prioritizing their financial security and equipping them with the knowledge and skills to navigate the world of money.
There are a variety of things you can do now to set yourself and your children (and maybe even grandchildren!) up for financial success. We’ll cover steps you can take to educate yourself and your children, plus savings options for those upcoming milestones!
Prioritize Your own Financial Security First
Parents may have the instinct to provide for their children over their own needs, but remember; if you help yourself first, that will help your child’s financial success in the long term. It’s like what flight attendants say: if the oxygen masks drop while you’re experiencing turbulence on a flight, you have to put on your own mask before helping others!
How so? Well, in the short term, many parents feel like the most effective way to help their kids is to provide every opportunity to educate and enrich their growth. After all, you’re trying to raise and nurture a human being!
But many parents provide for their kids at the expense of neglecting their own financial needs. If that happens, when your kids grow up and become adults, they may have to take on financial or care responsibilities for you while they’re also managing their own lives and families.
You or your peers may even be experiencing this now if you’re providing care or support for retired or aging relatives. The AARP found that as of 2020, nearly one in five Americans are caregivers for an adult with health or functional needs.
You may be squeezed between caring for your parents and your children simultaneously, especially if you’re shouldering the costs of both. Planning for your own security may feel counterintuitive, but it’s not selfish – it’s a gift to your children they will appreciate in the future.
Let’s dig in to things you can do to set yourself up for success.
It may feel like retirement is so far off in the future and there will be more time to prepare for that later, compared to your kid’s wants and needs, which are right in front of you in the present. However, data from numerous sources suggests that Americans are underprepared for retirement.
An article in Forbes cites that the median retirement savings for working-age households in the U.S. is $95,776. However, lots of older adults don’t catch up; retirement account provider Vanguard surveyed their customers in 2022 and found that the average balance for customers 65 and older was $279,997. Considering experts recommend having 11x your pre-retirement annual income saved, many American adults are not on track.
When you’re setting your budget, make sure to carve out retirement savings for you and your partner first, then address line items for your children second. The dollars you invest now have years (or even decades) to grow and compound, so take advantage while time is on your side!
It may be hard to have to turn down your child’s request for something, but every dollar you save now puts you in a spot to not have to rely on them down the road. If you don’t want a jarring experience for your kids to suddenly notice a change in their lifestyle, you could keep that spending category flat and then commit to dedicating any additional money from raises or bonuses to your retirement.
Elder care / Long-term care planning
Aging is a gift, but with age, most people will need more assistance with daily tasks. The AARP reports that seven in ten Americans will need long-term care. Of course, different cultures have varying traditions around who will provide elder care. Regardless of any expectations about how much your children will take on for your care, it’s a great idea to prepare as much as you can in advance.
Depending on your age and the age of your children, some steps for elder care planning might look like:
- Discussing care plans with your children
- Evaluating if your home is set up for aging in place, and making necessary changes ahead of time
- Researching the costs of long-term care
- Purchasing long-term care insurance (this often costs less the younger you are, so extra incentive to sign up sooner rather than later!)
- Understanding what private health insurance and Medicare will cover and filling any gaps
- Purchasing or upgrading life insurance for you and your spouse
Having these conversations and making these plans can be challenging. But, the earlier you get started, the less emotionally charged the process will be, so you can approach it with a sound mind. You’ll feel a weight lifted off your shoulders when you can rest assured that your future needs will be met!
After long term care planning, the next step is estate planning. Like with elder care planning, this process can be fraught with difficult emotions to process. But, solid estate planning can relieve the burden of stress on your family during a difficult time.
Take time to get your financial affairs in order when everything is stable in your life. Make a plan for who will be the executor for your estate, how you’ll divide your assets, like what should happen to any property you own. Contact an estate attorney for their help creating a will or even a trust.
If you’ve got multiple kids, grandkids, or perhaps some beloved nieces and nephews you want to include, make part of the process joyful; you can spark a productive, age-appropriate conversation about the types of things you have they may want to inherit. You may find that one child has a special love for the artwork in your home while another loves a particular piece of jewelry. You’ll all learn more about each other in the process which can make it feel less heavy. Ultimately, this is another opportunity to model the life and financial lessons you want to instill in your children.
Teaching Kids About Money
The next step is to take an active role in fostering your child’s awareness and future savvy with finances. Teaching children about money and finances will help them build important life skills and set them up for future financial success. Here’s a process that parents like you can follow to effectively teach your children about money:
Begin teaching your children about money early. Use everyday opportunities like grocery shopping trips or allowance discussions to introduce basic ideas about money. Tally up how much things cost when you’re going through store aisles together – a pound of strawberries might cost $3.00, the box of macaroni and cheese for $1.00 – so they start to get a reference point around the cost of things they interact with in their daily lives.
Make it tangible
Especially when kids are young, using physical bills and coins can help children grasp the concept of money. When kids must hand over the cash to buy an item, it can impart that money is not a finite resource and help them build strong savings and spending habits. Go to stores and restaurants (preferably at off-peak times when there is no pressure to rush) and walk your kids through making purchases with cash. Getting them involved with making the transactions over time will help the lessons really stick with them!
Set up savings goals
Teach your children the importance of saving by helping them set realistic savings goals. It could be for something small, like a toy they want, or for a larger goal like admission tickets to an event. Encourage them to allocate a portion of their allowance or any money they receive as gifts toward their savings goal. This will help them learn the value of delayed gratification, because they’ll only get the item after they have “earned” it. This can shape their perspective around money to be used for a healthy combination of saving and spending.
Introduce basic budgeting
As your children grow up and start to earn money for the first time, introduce them to basic budgeting concepts. Help them understand the distinction between needs and wants. Teach them to allocate their money for different purposes, such as saving, spending, and giving. You can use a simple allowance system where they allocate a certain percentage to each category. Check out our budgeting for beginners blog for a step-by-step breakdown!
Involve them in family financial purchase decisions
Some people learn best by doing. So, include your children in age-appropriate family financial discussions for real purchases. Purchasing something big like a new computer, appliance, car, or planning a vacation? Research the options at home and in store with your kids and use the purchase process as a learning experience. They can start to see the thought process behind why you make certain decisions, and the role money plays. Getting your kids involved will give them a broader understanding of financial choices and the benefits and trade-offs that come with all the options they have.
Review financial education resources together
Make learning a group activity! Attend a financial workshop together, watch money-related videos together, or keep reading blogs from FDIC-insured banks (like this one). Or, read a personal finance book together to tackle a specific topic in-depth.
Looking for some quality finance videos online? Check out these YouTube channels run by agencies of the U.S. government that break down common financial questions and topics:
Consumer Financial Protection Bureau
Social Security Administration
Internal Revenue Service
Small Business Administration
Securities and Exchange Commission
Covering Extracurricular Costs
Sports, summer camps, field trips, music or art lessons, scouting – the extracurricular activities open to children are endless. Enrichment activities can round out a child’s education, but are often costly between lessons, equipment, and uniforms.
Some of these costs can be irregularly timed, such as at the beginning of summer break or beginning of a new school year. To make the costs more manageable, budget for them in advance.
Milli’s Jars can be a helpful tool to stash money away for specific goals or expenses. You can set a name, an image, a dollar amount goal and an end date. You could create a Jar for each child, or a Jar for each extracurricular activity. With visual progress toward your goal, it’s a great way demonstrate to your children the financial discipline to budget and save up for something.
Remember to be resourceful and leverage free and low-cost opportunities for your kids to get involved in new skills. Check out programs run by your city, county, and public library. Faith-based organizations may run after-school or summer programs. And informal supplementary education can be just as valuable – whether you’re gardening together at home, or an extended family member is teaching your kid how to use a sewing machine.
Saving for College Fund
Whenever you think of financial planning that impacts your school-age children, the cost of college is a surefire topic. You may wonder: How much will it cost? How do other families handle paying for it?
In 2023, families reported that college cost them an average of $28,016 in the 2022-2033 academic year. Multiplied by the four years it typically takes to get a bachelor’s degree, that’s a substantial sum of over $100,000! Get started as early as possible and know all your options to save and prepare for the expense of further education.
If you think paying for it is all or nothing – a full ride scholarship, student loans, or parental contributions – you may be surprised. For the typical American family, it’s a blend with multiple funding sources.
For benchmark information about the cost of college and paying for it, check out the annual How America Pays for College report. If your student has college on the horizon in a few years, go over it together to start discussions.
Now, we’ll dig into specific ways that you can plan and save to cover the cost of higher education.
One of the more well-known ways to save for college is with a 529 plan, a tax-advantaged plan specifically designed for saving for education. These are state-sponsored investment plans and they may come with benefits like tax-free growth in value and reducing state income taxes as an incentive to save.
They do have some drawbacks. There are restrictions on how the money can be used without penalty, and some of the tax advantages may be null if you end up withdrawing the money for unqualified purposes. They may also impact the amount of need-based financial aid your child is awarded.
Check out this reference page from the Securities and Exchange Commission with answers to common questions about 529 plans.
A Roth IRA is another tax-advantaged designed for retirement. Though, some use an IRA to save up and then pay for college. Cutting into your retirement savings to pay for your child’s college is not ideal, because you lose out on the additional growth. But, if your child has earned income from a job, they can use a Roth IRA as a savings vehicle for college.
They can invest in the Roth IRA and the balance should grow as long as the stock market is up. Then, they take out their contributions as needed for educational expenses.
And, if for whatever reason they don’t need the money – either because they get so many scholarships or do not attend college – it’s still there for their future.
High-yield savings accounts or CDs
Looking for more flexibility than a 529 plan or Roth IRA? There’s always the option to use a general high yield savings account, or certificates of deposits, to store the money for college. This option provides flexibility in terms of withdrawal timelines and what you can use it for – and there’s a lot more to paying for college than just tuition.
Navigating the process of applying to financial aid
Another valuable way to help your kids’ financial future that costs you nothing: navigate the process of applying for financial aid and scholarships. When your child is in their senior year of high school and applying to college, you’ll fill out the Free Application for Student Aid (FAFSA) which will help them get aid. It’s free and can help your student receive grants and subsidized federal loans, but they’re not obligated to take them.
In 2022, 29% of families did not fill out the Free Application for Student Aid (FAFSA) because they believed their income was too high. But
, there is no specific income cutoff, and there is non-need-based aid your student may qualify for as well! Regardless of your income, it’s a great educational exercise to do with your children.
For more college savings tips, check out our full blog post!
Setting your children up for financial success is a process that evolves over time. One day you’re teaching them about how many nickels are in a dollar, the next you’re modeling how to spend and save, later you’re involving them in the planning process for major life events and purchases. Taking an intentional approach to teaching your kids about money in real-world, age-appropriate ways can help them build the important skills to navigate financial decisions as they become adults.
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