According to a September 2020 CNBC poll, over 50% of US parents have no savings for their children. The last few years have been difficult for a lot of us, so it’s understandable that many have not been able to put money away from education and other needs.
At Capital Growth, we believe some of the difficulty rests in not being aware of the many saving options available to parents.
Investing in your child’s future lets you be there for them in a very impactful way. Putting money aside for their education gives them the financial freedom to pave their own path in life and a safety net to catch them if they fall.
In the helpful article below, we’ll tell you everything you need to know about investing for children. From life insurance to RESPs and investment portfolios, you’ll have a better understanding of your options.
How can I secure my child’s future?
There’s a lot you can do to make sure that your kids are prepared for a successful future. Here are some basic tips and ideas that can help kickstart your savings plan.
Don’t wait, Start TODAY!
For the best chance of success, prepare immediately. Starting earlier is one of the single most important factors to having a sizable account down the line. The younger your children are, the better — you can even start before they are born. Even though you can’t predict what their interests will be, you can almost be certain they will need money to pursue those future passions.
Invest in life insurance
The loss of one or both parents is guaranteed to derail your attempts to secure a solid financial future for your kids. So, you’ll need to be prepared, just in case.
Buy long-term health and life insurance, making sure that you update and maintain them regularly. This article in Forbes offers some great insurance advice for first-time buyers. In the event that the worst happens, your kids will still have money that will ensure that they still have your support.
If you want to learn more about your life insurance options, talk with us. Capital Growth offers a range of insurance services.
Start an investment portfolio for your child
One of the most important savings tools in your arsenal is to build a strong investment portfolio for your child. There are thousands of options to not only save money but make money on your investments. Dividends, ETFs, crypto, equities — you have lots of options. Just make sure to assess your risk tolerance before investing.
A lot of people shy away from investing because they are overwhelmed by the options, confused by the process, lack knowledge about how it works, or feel it’s too complicated.
However, putting in the work can set up your child for success. Talk with us to get started.
What is the best way to invest for my child’s future?
529 College Savings Plans
A 529 college savings plan is an account that is targeted at saving for educational purposes.
Since it’s tax-sheltered, the money you have in that account can continue to grow without being taxed. Keep in mind that it cannot contribute to your tax deduction.
As an added benefit, these accounts have high contribution limits. Even better, anyone to contribute, including parents, grandparents, extended family, and friends. The accounts also provide the flexibility to change the beneficiary of the account to a qualified family member.
The downside to this program is that if your child decides not to pursue higher education, there are penalties and limits to how you access the funds. So, keep that in mind when making your education plans.
How can I help my child maintain healthy finances?
As the saying goes, sometimes the best way to help those you love is to teach them how to fish. Instructing your children on how to manage their money is an excellent habit. That way, they can continue to build savings while also making less mistakes that will cause unwanted difficulties in the future.
As your children grow old enough to understand the concept of money and savings, give them a weekly or monthly allowance to manage. Then, teach them at an early age about responsible spending and how to make budgets.
Finance literacy can start at a very young age. To learn more, check out this helpful list of 20+ finance books for children.
Instilling these ideas early will give them independence and practice at handling their money before they have to face real-life situations.
Savings Accounts
Savings accounts are tried and true methods of building money for the long term. There are many advantages to a savings account. The most important is that you can use the money for whatever purpose you wish. Whether it be education, marriage, emergencies, or a new car– it’s all possible.
Another benefit is that savings accounts accrue interest over time. Interest rates are normally fairly low, often 5% interest or less, but there is little to no risk involved. In fact, most are insured by the FDIC or NCUA.
You can open a savings account for very little money or even for free. Some banks offer free savings accounts when you open a checking account. Remember, there may be limits to how much you can withdraw. And federal law states you can’t make more than six withdrawals in a calendar month.
One disadvantage is that the interest is often applied only monthly or yearly, meaning it’s slow to grow. And some banks charge a monthly fee. Also, some savings accounts require you to maintain a minimum balance for the account to stay open.
Equity Investing
Another option for investment is equity, which can come in the form of stocks, bonds, mutual funds, or precious metals. While the reward can be high and your stock portfolio could explode in wealth, there is a lot more risk involved. If a particular stock you’ve invested in collapses, you’ll lose a lot of money.
The main problem with equity investments is that they require time, knowledge, preparation, and a little luck. You can cut the leg work down by partnering with a wealth manager or licensed broker. Trusting the experts will cost a percentage of your savings, but the upside is that they’ll monitor the account and move funds if certain investments accrue too much risk.
Let Capital Growth Help You Save for Your Children
Although most of us can set aside some money for their children’s future, getting help from the experts could increase those savings exponentially. At Capital Growth, our team of qualified financial advisors are ready to help you plan for your family’s future.
IMPORTANT DISCLOSURES
Consider the investment objectives, risks, charges and expenses before investing in a 529 College Savings Plan. Investments in a 529 plan are neither insured nor guaranteed and there is the risk of investment loss. This material is not intended to be construed as tax or legal advice. Always consult your tax and/or legal professional for details regarding your specific situation.