Jean Chatzky
We all have high aspirations for our kids — we want them to get the best grades, be on the top sports team, get into the college of their choice. But if you want them to be their best financially, there are a few things you could be (should be!) doing right now to help set them up for a healthy financial future. Here are a few things to tackle:
Start saving and investing early on
Just like you are told to save and invest for yourself, you can do the same for your kids. Taina Cuevas, Associate Editor of ConsumersAdvocate.org, says there are a few ways you can go about this. One way is to set up a custodial account. “Often called UGMA or UTMA, depending on the state, these are held strictly by the parent or guardian until the the child is 18. The money is technically the property of the minor, but withdrawals and deposits are managed by the adult,” says Cuevas. Another option for a savings account for a minor is what is known as a minor savings account — which is just an account jointly owned by both the parent and child and has fewer controls on withdrawals. The downside to both of these is if your 18-year-old decides to use the money for a Harley rather than Harvard, there’s little you can do to stop them. The fact that the money in these accounts is owned by the child can also stand in the way of receiving the maximum amount of financial aid.
For that reason, a 529 savings plan may be a better option. Financial aid formulas are kinder to 529 assets as long as the account is owned by the child or the parent. And there are other advantages, too. “This plan requires the savings to be specifically for college, but it has significant tax benefits that give it a meaningful advantage over other options,” says Cuevas.
Protect their credit
As of September 21, 2018, parents can freeze their children’s credit at no cost. It’s a smart thing to do for your kids as well as for yourself. “If your child has a credit file, this freeze will prohibit potential creditors from viewing the file. This in effect will make it very difficult to issue illicit credit in the child’s name,” says John Heath, Directing Attorney at Lexington Law. If you decide not to freeze your child’s credit, at least keep an eye on it. Heath suggests checking to see if there is a credit file associated with your child. “If there is, be aware of what is on that credit file and continue to monitor this report on a regular basis. If you do not recognize the listings on the file, contact the creditor to inquire why the listing is on the report,” says Heath.
Don’t delay getting life insurance
Another way you can protect your child’s financial future is to buy life insurance. “It’s an unfortunate reality that parents of young children tend to delay purchasing life insurance under the thinking they are young enough to go without a policy for a few more years. Tragically, this also tends to be the time when parents are at the peak of their earning potential and therefore often at the top of their debt amount,” says Cuevas. She warns that a single, unthinkable accident for just one parent can be devastating to a child’s financial prospects for decades into the future. In other words, if you have children — or other dependents — who rely on your income for their day to day needs, the time to get a life insurance policy is now.
With Hattie Burgher
Chris O'Shea
