Parenthood is a challenging role, especially when it comes to ensuring that a child’s future is the best it can possibly be. A parent survey found that 53% haven’t opened bank accounts for their children’s futures, and 29% of those who did are now struggling to put in the contributions due to the pandemic. This can cause anxiety for any parent-to-be anticipating bigger expenses down the line for their child’s needs. Fortunately, investing in your child’s future as early as possible can ease this financial burden. As with most long-term investments, starting early is key to reaping the benefits to the fullest, especially as children start to get involved with financial decisions for their future.
Here are some of the key investments that expecting parents can make for their children:
Opening a Children’s Savings Account
Until now, many students continue to rely on financial aid to support their studies, which has led to a dependence on student loans. However, student debt can have negative consequences that leave newly independent adults ill-equipped for repayment and struggling with their finances for many years to come. Parents can consider opening a Children’s Savings Accounts (CSA) that can leverage their investments through an initial deposit ranging from $25 to $1,000. These long-term investments allow families to build assets for postsecondary education, filling the gap where the current financial aid model falls short. CSAs have also proven to be beneficial for children outside the obvious financial benefits. It enables students to set better educational goals and greatly improve their academic performance to reach such expectations. This results in better college outcomes and a greater return on their degree for career success. CSA program participation has also led to better social and emotional well-being.
Certificates of Deposit Certificates of Deposit (CD) are bank products that provide depositors with an interest rate premium in exchange for depositing a lump sum that cannot be withdrawn over a set period of time. While savings accounts have the advantage of being more liquid, CDs offer a higher interest rate with the added benefit of being less volatile than stocks or bonds, making it a less risky option for parents who are saving money for their children. Consider building a CD ladder, which mostly involves spreading your investments across several CDs. This means that part of your money will become easily accessible every time one of these accounts matures. This way, expecting parents won’t have to lump all their savings into one basket, and greater liquidity can allow for emergency preparation without compromising future savings.
Health Savings Account As your child grows up, there may be times when they sustain injuries or develop medical conditions that need treatment. Under Healthcare Reform, parents who have applied for a Health Savings Account (HSA) can use their coverage to pay for the child's medical expenses as eligible dependents. By opening an account early on and using it with a high deductible health plan, you can save money before taxes to pay for health care expenses for yourself and, more importantly, your dependents. This ensures your children will be protected until they can open their own HSA as adults. What's more, your contributions to an HSA aren't subjected to federal income tax, which means the earnings in your account can grow tax-free for your child's future. Being a parent is a truly unique experience filled with joy, but it also has its fair share of challenges and responsibilities. By prioritizing child preparedness and involving your kids in financial discussions appropriate to their level of understanding, you can help them develop into independent adults through financial literacy. Whether they're learning how to budget for the first time or how you saved for their education, trusting them with finances will enable them to treat any setbacks with more maturity and intelligence once they leave the nest.
Article specially written for childhoodpreparedness.org
By Alicia Robins