Planning for a child’s financial future used to be considered a luxury, with only the wealthiest families able to provide for their life and education through trust funds or estates. Today, tools for safeguarding the financial security of a child are available to everyone, and parents will want to take advantage of these many tools and schemes throughout their child’s life, often starting from birth.
There are several reasons why it is wise to plan for a child’s financial future. Many parents simply want to save for their child’s educational future, putting aside money from an early age for a college education. Providing for the child in the event of parents becoming ill or dying is also a consideration and an important reason to make financial plans for their protection. Other parents may wish to leave property or other wealth to their child – a financial legacy with meaning.
Whatever direction a family chooses to go will be guided by their own personal financial goals and situation. The one constant investing principle throughout is that regardless of what financial plan is chosen, it is vital to start saving for the child’s future as early as possible.
Ways to secure a child’s financial future
The first step for anyone looking to provide for their child is to make sure that their will is up-to-date. A well-written will may provide for not only the financial protection and future of a child, but also for their physical well being in the event of the death of the parent(s). For a young child, establishing a trust will see to it that assets are handled appropriately while at the same time protecting the interests of the child.
Life insurance should also be a consideration. A life insurance policy is a valuable way to provide for loved ones after death, and also to provide a source for emergency funding during life. A life insurance policy can be maintained by the parents for a relatively small monthly investment.
There are many different ways to save for college, but by far one of the most popular and successful is the 529 college savings plan. Named for the IRS Code that authorizes its existence, the 529 is flexible and offers parents numerous tax advantages and the ability to retain control of their assets.
Other options for saving for a child include savings accounts and custodial brokerage accounts. Savings accounts, such as the Uniform Transfer to Minors Account (UTMA) or the Uniform Gift to Minors Account (UGMA), may be opened and managed through online banking; the child will get control of the Discover online banking account when they reach legal age.
For broader savings options many parents consider custodial brokerage accounts. Easy to open, flexible and inexpensive, these accounts are taxed under a lower child’s rate and are filed under the child’s social security number rather than that of the parent(s). Like the savings accounts, the child will gain access to the money at legal age.
*About the Author: Aimee Claire is an enthusiastic, well-educated freelance writer with big ideas for the future. She is fascinated by the possibilities of modern technology, and what it could do for businesses in the future.