As a mother of two, I understand that knowing how to set your kids up financially can seem tough. As a financial educator with World Financial Group, I also understand how important it is! Once you become a parent, you are responsible for not only your own financial planning, but for teaching your kids about finances and setting them up for financial success along the way. That’s why implementable financial planning tips for parents are so important!
Money isn’t everything, but having a solid financial foundation can definitely help reduce stress and help you build your future. Not only that, but creating a financial plan for your kiddos and teaching them the right stuff from a young age will make it easier for them to chase big dreams as they grow up. The good news is that you don’t need to have a lot of cash in the bank to get started.
But where do you get started? When should you open a college fund? When and how should you talk to your kids about financial planning? What else should you do?
Read on for some of my go-to financial planning tips for parents!
Financial Planning Steps For Parents
There are several steps that you can take to help secure your child’s financial future.
Be smart about how you save for your child’s future
There are several ways that you can start saving for your child’s future. I recommend going with an option that not only makes it easy to build savings over time, but leaves the funds available to your child no matter which path they choose to pursue
This is the issue that I have with Registered Education Savings Plans (RESP). RESPs are a common savings option as many people think it’s what they need for their kids to go to school, but unfortunately they are actually quite difficult to pull your money out of. The rate of return is rather small, and if your child doesn’t end up going to post secondary school, all the interest and grants disappear.
Instead, I would recommend setting your child up with a universal life insurance plan which doubles as an investment account. This type of insurance is permanent, which is great because your child will have qualified when they are young and healthy, plus it has cash value.
A universal life insurance plan can also be used as a tax shelter when the money is pulled out correctly, which you can discuss with your financial advisor. Last but not least, you just helped fund your child’s retirement and grandchildren’s futures!
Get the right life insurance plan for yourself
Another one of my go-to financial planning tips for parents is to invest in life and critical illness insurance. If you think that those aren’t for you, you’re not alone. Many people misunderstand life insurance and the importance of having it, even if they’re young and healthy.
But the truth is that life and disability insurance is an important safety net for you and your family, and the sooner you get it, the better. It’s not a fun thing to think about, but life is full of unpredictable events, and it’s better to be safe than sorry. Insurance is the foundation of your financial house. If your foundation isn’t strong, how is it supposed to hold up during a storm?
Life and disability insurance helps to protect you and your family in the unfortunate incidence of sickness, injury or death. Even if you’re not the primary income earner or you’re a stay-at-home parent, you are still a valuable part of the family and child care is very expensive if it needs to be replaced, which is why it’s important that both parents have coverage.
You may also want to consider mortgage insurance and creditor protection—but these aren’t sufficient when it comes to protecting your family. Mortgage insurance only pays off the balance of your mortgage—if it even pays out at all. Over half of the claims made on mortgage insurance are rejected. I always encourage my clients to have personal life insurance which pays out a full benefit. If, for example, you have a home with a mortgage of 200K owing and you have a 500K life insurance policy, then you can pay out your mortgage plus have 300K left over to pay for large costs such as daycare replacement, funerals, mutual debts such as vehicles and if you wanted maybe save some money for your kids education.
Credit protection is also a no no. The amount of money they charge for you to have that coverage could pay off the balance on your credit cards many times over. Creditor protection is a way for credit card companies to keep you in debt, which is how they make money—with you paying interest on your balance.
Create a will
Another touchy but crucial topic for new parents—creating a will.
I’ll just come out and say it: no matter how young and healthy you may be, having a will that designates where your assets should be distributed in the event of your death is essential. Not only will it help protect the interests—both personal and financial—of your children, but having a proper will often helps to minimize additional heartache for grieving families.
The benefits of creating a will are not only monetary—it also allows you to have your children go to your preferred guardian, which is very important. If there is no will sometimes they end up going into foster care until the system decides where they should be placed, especially if there are family conflicts.
Make smart financial investments
One of the best ways to secure your child’s financial future is to build your own! By making smart investments that appreciate over time, you’ll have more to contribute to their RESPs or offer them when the time is right, if you choose.
Consider investing in promising funds or accumulating assets, like real estate. If you’re looking for financial education advice or Kamloops real estate, I can help!
Teaching your kids about finances
Taking the above financial planning steps is a great place to start, but one of the most valuable financial planning tips for parents is to teach your kids about finances as they grow up. Consider having these conversations with your child when the time is right.
Help them understand how money is earned
One of the first finance lessons for kids is that money typically needs to be earned.
When they are old enough to understand, start explaining that things cost money and how it is earned when people go to work.
You may also want to start an allowance for your child, where they receive a small amount of money for completing specific tasks.
Practice budgeting and saving with your kids
By using either their allowance or birthday money, help your child practice budgeting and saving. Choose an item (or better yet, a fun activity or even a gift for someone else) that they have been eyeing up, and do the math together.
If the item costs x amount of dollars, how long will they need to save up to be able to afford that item? How many chores must they complete? Is this particular item worth it, or is there something else they’d rather save for?
Open a bank account for your child and teach them how to use it
Once they’re old enough, open a bank account for your child and allow them to start putting money in. Show them how to check their balance and use a debit card.
Create a seperate account for savings! The saving mentality is learned and we want our kids to save early so they can have the life they want. I recommend giving “The Wealthy Barber” a read, which talks about saving 10% of your earnings and the importance of paying yourself first.
Having a grasp on this before they have their first job will be helpful!
Teach your kids about bills and taxes
While we’d all like to go back to the age where we didn’t have to think about taxes and bills, it’s a simple reality that they’ll have to learn eventually!
By talking to your kids about the types of bills and taxes they’ll have to pay, they’ll be less shocked than if they have to find out the hard way.
Explain why the cost of items at the till is often higher than the cost they see on the shelf. Discuss how things like water, electricity, cable and internet cost money every month. When they’re starting to earn their own money, make sure they understand income tax and the fact that taxes must be filed every year.
This stuff just isn’t taught in schools! I work with a few teachers who can attest to that. As parents, it’s important that we do the dirty work to prepare our kids for financial success!
Help your child understand credit and debt
This is another doozy! But again, once your kid is earning their own income and spending as they please (probably as a teenager), it’s important that they understand how credit and debt work.
Many people underestimate the consequences of abusing credit and going into unnecessary debt at a young age. Having these types of financial planning conversations with your kid might not be super fun, but they’ll thank you for it in the long run.
For a first credit card, I recommend choosing a credit card with a low limit. Explain the importance of keeping the card always less than 75% full and paying it all the way off occasionally, using it to build their credit rating.
Credit companies want to make sure you can handle your debt and manage it. Far too many times I have seen young adults who want to purchase their first home and they need to repair their credit from missing payments. This can take YEARS to fix, so the sooner your kids understand credit and debt, the better!
Make sure your kids know that money isn’t everything
Last but not least, teach your kids that while financial freedom is a great goal, money isn’t everything!
Encourage them to save money to purchase a gift for someone they care about. Volunteer together to show the value of offering your time to a worthy cause. Avoid putting a price on every chore or way of helping out around the house. Help them develop an understanding of how money works, without thinking it takes precedence over helping people, creating memories, or upholding their values.
If you need help with any of the above—from finding the right life or disability insurance plan, to opening an account, to bettering your own financial education so that you can talk about it with your kids—I’m here to help!
Looking for more financial planning tips for parents? Let’s talk and see how we can set you, and your children, up for financial success.