7 Ways to Safeguard Your Children’s Financial Future

For many of us, our worldview changes the instant we become parents.  When your firstborn child enters the world, you simply can’t think of your own goals and interests first. Rather, you have the new and more significant responsibilities of caring for your child.  This includes financial responsibilities for the child as well.

Money might not seem like the most urgent of needs. After all, feeding, caring, protecting, and nurturing are all up to you. That being said, from the day he or she hits the scene, and all the way through becoming adult (and perhaps beyond), your maturity and wisdom will be there to guide your child.

As a parent myself, I like to actively think of ways that I can take care of my kids, including financially. In that regard, there are many steps you can take to help protect your child financially as they get older. Here are 7 that can make a big impact:

1. Having an updated will. If you have a will, you can determine what happens to your assets in the event you and your spouse die. You can spell out division of assets, and how they will be distributed. If you do not have a will, your exact wishes might not be followed. In that case, your assets will be allocated to your heirs based on your state’s laws. What are the chances that these default laws will line up with your wishes? Protect your kids and your wishes – make a will.
2. Purchasing the right insurance. Sure, almost all of us have car insurance and homeowners or renters insurance. But what happens if you unexpectedly die? As a provider for your children, your income is necessary for their day-to-day expenses. What would they do if you weren’t there anymore? Where would the money come from? Just think about it. Protect yourself with life insurance. Or, you could be living but become disabled. How do your kids get cared for then? Protect yourself with disability income insurance.
3. Saving money for their college education. A college education is obviously going to be critical for today’s children to succeed when they are older. Many will go on to graduate school. Why burden your child with debt at a young age, in their 20’s, that they may not be able to pay off until they are in their 30’s? That will cripple their ability to save for their own future, much less help the following generation.529 plans can be a great way to save in a tax-advantaged way, and there are a variety of options to choose from regardless of the state in which you live. Of course, it’s also important to save for your own retirement, so be sure to balance your needs with helping kids. After all, they have their lives to work but you’ll have far less time.
4. Forming a trust. With young children, this protects them and makes sure that the assets are handled properly. From a tax perspective, there are ways you can build in some real, measurable benefits.
5. Obtaining long-term care coverage. Do you want to ultimately leave your children an inheritance? If so, be sure to consider long-term care coverage. The cost of such care can be very high – shockingly so to many people. Every situation is different of course, but in some of those, your nest egg can be drained very quickly if this care is needed.
6. Avoiding the temptation to spoil them.  Admittedly, this is tough one for me to always follow. However, I know it’s important to not go too far in giving in to what your kids want and enjoy. After all, life isn’t about getting what you want all the time. Needs come first. It’s important for kids to be able to handle some basic disappointment, and learn patience. Giving them everything they want all the time might make them happy, but instant gratification isn’t going to be there in adulthood. In other worlds, don’t let them feel entitled to get whatever they want.
7. Teaching your kids about personal finance.  “Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.” I’ve always liked this quote. Think about this in the context of your kids and how they will eventually handle money as young adults.  They might eventually open online savings accounts, or manage their money in other ways. If you are reading this, then you clearly have an interest in protecting their financial future and making sure their decisions are sound. Share this interest with them by teaching them lessons and practical strategies for managing finances.

My Questions for You:

What do you think of this list? Anything you would add?

If you’re a parent, do you practice any of these?

If you’re not, did you see your own parents do any of these things?

Note: The preceding was an update and revision of a post from April, 2010. Back then, Squirrelers was just a few weeks old, and readership was literally 1% of what it is now. Thought it might be nice to bring it out of the vault and update it:)

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