Most of us have financial dreams for our children. While these dreams vary from person-to-person, most parents would agree - our dreams are inevitably tied to our desire for our children to live full and happy lives.
Financial security certainly doesn’t guarantee you won’t encounter any “bumps in the road,” but there’s no denying that a life absent of financial stress improves your chances of a happy life. So what can you do to ensure your financial dreams become a reality for your children?
One of the first things you can do to help ensure your offspring have secure financial futures is to teach them how to live within their means. This lesson can be taught beginning at a very early age.
Aside from providing a good role model for your children in the budgeting department, another practice you might consider is not allowing them to spend money they don’t have. For example, if you have a teenager, you more than likely have been approached with this plea: “Mom, can I borrow $25 to buy this new DVD? I’m dying to watch it! I’ll pay you back next week when I get paid for babysitting!” As difficult as it may be, you will teach your child a valuable lesson by saying “No, you can buy the DVD next week when you get paid.”
I also urge you to talk to your children about saving and encourage them to “pay themselves first,” which means they should tuck away at least 10 percent of their earnings into a savings plan.
Once your son or daughter earns income from a job, he or she is eligible to open a Roth IRA, which is an amazing investment in their future. If you help your 15-year-old contribute $3,000 each year for five consecutive years into an account, it is possible that he or she could have well over two million dollars by the time he or she reaches age 65, due to the power of compounding from an early age. This can happen without ever contributing another dime beyond the initial five-year, $15,000 dollar investment! This is something I have done for my children, and I definitely advise others to do.
Most of us also consider it our responsibility to ensure our sons and daughters get the best quality education possible. As you know, that’s not free! If you are saving for your child’s college education, you should become acquainted with the Section 529 plans, which are education savings programs sponsored by most states under Section 529 of the Internal Revenue Code. Money invested in Section 529 plans grows free of federal income tax until Dec. 31, 2010, and free of state income tax in certain states also.
There are many things you can do to place your children on the path to financial security, but I feel the points I mentioned are key. Follow these tips and you will be well on your way to fulfilling your financial dreams for your children!
Ms. Paal is a certified financial planner at Heritage Financial Consultants in Lutherville, Md., and is an investment advisor representative, registered representative, and licensed insurance broker with Lincoln Financial Advisors Corporation, a registered investment advisor and broker-dealer (1300 York Road, Lutherville, MD, 410-339-6675). You may email Kathy at [email protected].