If you were to ask, most parents would have no problem telling you that they simply want what’s best for their kids. How does one achieve setting up their kid for success financially, though?
That seems to be a valid question as more and more adults express how they wish someone had taught them how money works. I’m a firm believer in the phrase “success leaves clues”, so let’s look at what wealthy parents are doing financially for their kids.
Save For Their College Early. It makes no logical sense to sell your kid the dream of finishing college all throughout their childhood, but when it’s time to enroll, no one has any money to pay for it. It’s time for us to begin taking college expenses seriously.
Investing in a 529 college savings plan early, allows compound interest to work on your behalf longer. Also, the earnings in the plan are exempt from federal taxes which means that, as long as you are withdrawing funds for covered educational expenses, you will not pay income taxes at the time of withdrawal. That’s what we call a win!
Teach Them the Importance of Saving This one is major! Not only will they learn that paying yourself first brings financial peace, but there will also be opportunities to teach them about setting short and long-term financial goals as the desire for certain items arises.
Warn Them About Debt Having very open and honest conversations with kids about debt is one way to ensure they start on the right track. I remember being 18 and getting hounded by credit card company after credit card company, and my dad warning me of the dangers of utilizing debt.
I remember being terrified of credit cards until I was about 22. It was then that I began to rack up stupid debt, but I never was completely comfortable making those purchases because of the seeds that were planted at 18. Those conversations played a huge role in me realizing that I needed to make a change after reaching a certain point.
It’s important that you plant those seeds because, if you don’t, the credit card companies definitely will.
Prepare for Their Own Retirement One way to help your kids succeed financially is to prepare for your own retirement. Relying on social security to take care of you in old age is not a good plan, and it puts your kids at risk for having to support you financially.
Once you’re out of consumer debt, begin to invest 15% of your income into tax-advantaged retirement plans so that you aren’t taking away from their success or becoming an additional burden during an already tough time.
Model The Behavior of Consistent Giving One thing that brings me much joy is giving. I wasn’t a natural giver, but, as I gave more frequently, I realized that I was the one being blessed through giving. I’m grateful for parents and grand-parents that modeled this behavior, and not only taught me how to give, but encouraged me to do so frequently.
Find a church, cause, charity, or person that your kids are excited to give to, and really encourage the behavior, but, most importantly, let them catch you being a giver also.
Set A Healthy Example If you don’t teach your kids about money, someone else will. Leaving their financial well-being up to the television, the banks marketing department, and other unhealthy options is a huge risk on your part.
Be the model of contentment, handling your responsibilities, and thinking long-term that your kid would otherwise wish they had as they navigate adulthood.