As parents, we want to be able to provide the world for our kids. In the beginning, we just want them to succeed in the little things, like walking, which you can see my wife attempting here with our daughter. But as our kids get older, we do our best to teach them right from wrong, to instill confidence, and to help them discover who they are.
Regardless of the careers our kids eventually pursue, we hope they can attain financial security and have the confidence to make informed decisions with their money. Just as we can’t guarantee our own success, we can’t do so for our kids. But by taking a few actions with your own financial planning, you can help your kids start off on the right foot financially.
1. Review Your Financial Situation
If you don’t take care of your financial situation, you may cause your children to start their lives taking care of you, which may cause them financial and emotional stress. Take time to focus on your finances. Start by reviewing your life insurance policy. Do you have enough coverage to prevent your family from going into debt if you were to unexpectedly pass? If your family has grown in the past few years, it may be time to make an update.
Now may also be a time to review your estate plan — or implement one if you don’t already have a strategy. Without a will, your estate faces probate, which can be a costly and timely process. Even if you already have a will, review it at least once every two or three years to make sure it’s accurate and up-to-date.
Lastly, don’t neglect your retirement planning because you’re saving for your child’s college education. Many parents who choose to save more of their money for retirement realize that they are on their own, and they don’t believe Social Security will be enough to cover their cost of living in their retirement years. While these parents may put some money into their children’s college savings accounts from time to time, they realize that in order to take care of their family, they need to take care of themselves first. After all, if they don’t have enough saved up for retirement, the support they may need could ultimately fall on their children’s shoulders.
2. Help Them Save for Retirement
Just about any financial professional will tell you: it’s never too early to start saving for retirement. A lot of times I hear people say that they don’t have enough money to make it worth contributing to an IRA or 401(k). But $25 per month is still $25 more than $0.
As you approach retirement, you’re probably seeing firsthand how different the retirement landscape is compared to your parents’ generation. Even Millennials worry about Social Security and whether it’ll be around in 50 years. You can help your kids start saving for retirement with something as simple as a Roth IRA.
Consider the following: A mother opens a Roth IRA for her 21-year-old daughter who is in college and working part-time. They opened the account with $1,250 and are contributing $100 per month. If she were to continue contributing $100 every month, she would have $366,000 when she turns 65 years old (assuming a 7% annual return). The eye-opening number is if she waited to start saving until she was 26 years old under the same assumptions, she would have $100,000 less at age 65. This is a hypothetical example for illustrative purposes only. It is not intended to reflect the actual performance of any security. All investments involve risk and you may incur a gain or a loss. Your results will vary from those listed here.
Compound interest can be a young person’s greatest ally. Help your kids understand the importance of retirement planning at an early age.
3. Help Them Fund a Life Insurance Policy
Life insurance can play an important role in someone’s financial strategies at any age. Parents may choose to fund a life insurance policy on their children to take advantage of a lower premium. While parents don’t anticipate their children dying at a young age, generally speaking, policies are less expensive the earlier you purchase them because you have longevity and your health on your side.
Life insurance can also help protect your kid’s financial portfolio when they get older. With a permanent policy, the cash value built up in the life insurance can be used to subsidize the costs that they would pay when they get a larger policy or they can even be used to fund long-term care insurance later in life. And, should the unfortunate happen, life insurance can offer some additional confidence and financial security.
Recruit Professional Help
It can be helpful to introduce your kids to your financial advisor or, if you aren’t working with one, to find one who is willing to work with your entire family. An advisor can help your kids start investing and learn the importance of saving for retirement as early as possible.
The more financial knowledge your kids have, the better equipped they’ll be to get on the right financial foot once they graduate college and enter the adult world. As a father myself, I understand parents’ desire to educate their children about money. I’d be happy to meet with you and your children to talk about money management and identify opportunities to start saving and investing early. To set up a meeting, call my office at (949) 221-8105 x 2128, or email me at [email protected].
About Mike Loo
Mike Loo is an independent financial advisor with more than 20 years of experience in the financial services industry. His mission is to provide a meaningful impact on the lives of clients and the people they care most about, help them make educated decisions with their money, and build a strong financial foundation for both themselves and their next generation. Mike is committed to meeting a high standard of excellence, taking the time to listen to clients’ needs, and designing strategies that aim to help clients save money and reduce debt. He seeks to fit a client’s investments into their life and educate them so they’ll understand their investments. To learn more about how Mike may be able to help, connect with him on LinkedIn, call his office at (949) 221-8105 x 2128, or email him at [email protected].
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Trilogy Capital, a registered investment advisor. Trilogy Capital and Trilogy Financial are separate entities from LPL Financial.