Besides paying for whatever lifestyle they choose forever, what can you do for your children that will make an impact their entire lives?
I want to be a great parent. I also do not want to teach my children to depend on me always.
We all want what is best for our children.
I want them to be educated on finances and not need to come crawling to me asking for money into their adulthood. I want them to be able to make decisions that are financially correct.
So what can you do to help your children financially (even without available cash)?
Educate them about Money
This is the easiest and most rewarding item on this list. Teach your children to budget. Buy them books related to finances. If they show interest, enroll them in personal finance classes for kids.
There’s so much about money you should be sharing freely over the dinner table. I don’t want you to obsess over money, but I do want you to be able to communicate all the things you know and wish you knew at that same age.
Have you taught them how important it is to pay off credit card balances each month? Or what social security is? Maybe those are topics for discussion. Make a list of money items you’d like to make sure your child understands and knock them off occasionally one by one. Follow up with questions at a later date to make sure they understood the conversation. Do research on a topic if you feel like you aren’t educated enough in a particular area. I hear of so many young adults saying “I wish my parents had shown me more”.
Make sure they know and understand what paying themselves first means. Show that a percentage off the top of their earnings should go towards savings.
Discuss college at an early age
Discuss college at an early age. Go on college tours. Research expenses. Go over all the basics – community college, undergraduate vs graduate degrees, out of state vs in state tuition. Research different types of loans and scholarships. Prepare long before high school.
Help with College Expenses where you can
Help with college where you can. Every family’s financial situation is different. You do what is best for your family. I will say that 529 plans are amazing savings accounts designated for college expenses. These contributions are tax free. If you’re able to contribute – contribute. The younger the child is when you start contributions, the more that compound interest can help the account grow. (More on Compound Interest Here if you’d like to use the calculator)
If you can’t contribute, help them with the application process for scholarships. Make sure you’re helping them put their best foot forward financially in college
Invest in SAT/ACT Tutoring
Invest in SAT/ACT Tutors. That score matters so much when it comes to college scholarships. I’m about to do this with my seventeen year old and I’ll let you know how it goes. However, I’ve spoken to multiple parents that say this helped raise their ACT score greatly. One of my favorite mom friends actually said this boosted her child’s score by 10 points.
Think of the cost of the tutor as an investment.
Let them Live Rent Free…Or Don’t
Let them live rent free for as long as possible. They’re more likely to stay out of trouble when they are living under your roof. If you’ve taught them about saving and budgeting, they know that they should be using this time to set themselves up for future financial success.
OR Let them stay at home, but pay you a small amount of rent while they are going to college or saving up for a down payment on a house. When they are ready to move out, give them all that money back.
Make them an Authorized User on one of Your Credit Cards
Consider allowing your child to be an authorized user on one of your credit cards. This will automatically give them payment history and help their credit score. Make sure to educate them on the use of the card and the importance of paying the balance in full each month before the due date. Show them what the interest would look like if they do not.
Slowly Give them Adult Expenses
Slowly start having them pay their own expenses once they are ready. Do not dump the car insurance, cell phone bill, groceries, dental, etc. at them all at once. They will be overwhelmed. When you are ready, make a schedule for them and show them which expenses and how much will be coming their way. You’ve prepared them for this day long before now.
Emergency Fund
Make sure they know the importance of an emergency fund. Part of the funds they pay themselves first with should go towards an emergency fund. Give them examples of emergencies – car repair for example. Give examples of your past experiences where you had an emergency come up and you were thankful the money was there.
Discuss the possibility of being let go from a position. It happens to some of the best employees and a job isn’t always a certain thing. They need an emergency fund to cover their expenses while they are looking for the next path.
Don’t let them worry about Your Retirement
Support yourself and save for your own retirement. You don’t want your children to worry about how you are going to take care of yourself in retirement. Let them worry about saving for their own future at a young age and not be burdened with worrying about how they will help you in the future.
Teach Them about Saving for Their Own Retirement
Make sure they understand what kind of retirement accounts are out there and what makes the most sense throughout their life. A Roth IRA may make the most sense at first because it’s contribution is after taxes (but you take withdrawals tax free). However, if your child has an employer with a 401(k) matching program, you also don’t want to miss out on free money. Make sure they understand the differences so they can make their own educated decisions in adulthood. For Example:
Traditional IRA – Pre-Tax Contribution. You pay taxes when you withdraw.
Roth IRA – Post Tax Contribution. Your money grows tax-free in your account.
401(k) – Employer Sponsored Account. Pre-Tax. Your employer could (most likely) offer a matching contribution. Know up front what that matching contribution is.
Roth IRA Account for a Minor
Check out a Roth IRA Investment account for a Minor if they are under the age of 18 and have earned income. I opened one through Fidelity for my then 16 year old. She is currently earning around $8,000 per year. If they can keep this money in the account until retirement, all earnings are tax free. Contributions can be withdrawn at any time. Not all investment companies offer this.
Communication and education is the best gift you can give your child.
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