After a very difficult year, and after learning how important it is to be ready to face economic uncertainty, taking precautions to protect your family has become a priority for almost everyone. How can you safeguard your child’s financial security?
If you are a parent, your child's financial future is surely one of your main worries. Financial planning will help you raise funds for college and any emergency that may happen. What steps can you take to achieve this?
Statistics indicate that 83% of Americans can’t pay for college, Millenials earn 20% less than the previous generation, fewer young adults own their own homes, and only 25% are financially independent at the age of 22.
All these facts make parents very concerned about the financial fate of their children, but here are some tips they can follow to make the future less uncertain.
Opening a custodial account
This is one of the easiest accounts to open. It’s basically a savings account in your child’s name. The account will be accessible once your child turns 18 or 21 depending on their locality. The disadvantage is that the funds are taxable after the first $950.
Opening an Education Savings Account
An ESA (Education Saving Account) will enable you to deposit up to $2,000 annually towards your child’s college tuition. The plan allows the funds to grow tax-deferred. ESA’s aren’t just for college expenses;
If you plan to invest more than $2,000 every year you may want to consider a 529 plan. It’s similar to an ESA plan except without the annual limit.
Considering A 529 college plan
There are two types of 529 plans; pre-paid plans and savings plans. A pre-paid account allows parents to buy tuition credits for future use. On the other hand, a 529 savings plan consists of mutual funds investments that grow over time.
Most plans have many investment options. Financial experts suggest funding the account to the maximum amount as soon as your child is born in order to maximize future growth.
Having an updated will
Creating a will is imperative when it comes to protecting your child’s financial future. You will also need to designate a guardian to take care of your children and name a property guardian to manage your estate if a tragedy occurs.
Updating Beneficiary Information
Make sure to update beneficiary designation is up-to-date on your life insurance policy, bank, and retirement accounts. It’s important to update this information after major live events such as the birth of a child or divorce because beneficiary Information will override a will, Experts also suggest naming a contingent beneficiary in case the primary beneficiary dies before you.
Getting life insurance
The most common reason for delaying life insurance is perceived cost. The average policy cost for a 35-year-old female non-smoker is just $61 per month. Inquire about life insurance in order to protect your family; it may be a lot cheaper than you think.
Talking to kids about money
Children tend to follow their parent's example. The first way to make them aware of the importance of not overspending is not doing so ourselves. Saving and budgeting may be a lot easier for them if they see us doing it regularly.
Talk to your kids about how to manage credit cards, a bank account, and how to budget. Encourage your teen children to get a job and save for what they want instead of handing them over money.