Preparing for school can be overwhelming, even for families who can afford an expensive education for their children. Family financial literacy, planning early and defining clear goals will make the process smoother.
Family Financial Literacy
Financial literacy is an imperative life skill. Yet, for many of us, it is elusive, if not intimidating. Unfortunately, finance classes are not required courses in most states. In fact, according to Forbes, fewer than 20 states require any education about finances at all.
As a result, young people may look to parents for information. But not all parents are comfortable discussing family finances with their children. Such reluctance can leave kids rudderless in a sea of overwhelming choices. This is where mistakes happen, creating financial burdens that can negatively impact an individual’s ability to achieve important life goals.
By teaching your kids proper money management, you are creating a pattern of good money habits that can provide financial stability later in life. Helping children set up long- and short-term goals is a great way to let them navigate financial responsibility with a safety net. We teach our kids how to use so many tools; money should be one of them.
Involving children in finances from a very young age helps them learn smart money habits. Preschoolers can understand basic concepts such as earning money by working or the need to wait for things we want until we can pay for them. Talk openly with kids about how to make smart choices. Parental guidance can go a long way toward solidifying a healthy relationship with finances.
As young adults gain independence, many start working and earning their own money, but they may still need assistance. If you are supporting your children, let them know the monetary cost of the experiences and material items they enjoy. You’ve probably heard the advice to pay yourself first, so show your kids the value of saving for their future. Open an investment or savings account for your child and teach its value. Financial literacy empowers people to build wealth in their lives.
Financial literacy can improve credit behavior in young people. Make sure your kids understand their credit score and how it can impact their ability to get a credit card, an apartment or a mortgage. An individual’s creditworthiness is also a factor in the price of car insurance premiums. The ability to make informed decisions will set a financially literate family apart.
Preparing for School
A college education increases an individual’s earning potential, but with national student debt in the trillions, the idea may seem unattainable to some families. Even for families that can well afford an expensive education, considerations such as location and the number of college-bound children may affect the decision of where to send a child to school.
Though it may be tempting, resist the urge to dip into your retirement funds. In addition to reducing your nest egg, early withdrawal creates taxable income that could ultimately reduce the amount of aid for which your child qualifies. Sit with a financial aid professional to learn about options such as FAFSA. Even if you believe it won’t benefit your situation, there are many opportunities for scholarships and aid.
Tax-advantaged accounts, such as 529 savings plans, can be a way to save for education expenses. These popular plans allow individuals to save for future education-related expenses. Though there are rules for distributing the money without penalties, you can make the contributions automatic, and earnings grow federal-tax free. Many states also offer additional benefits for 529 accounts.
Another type of 529 plan is the prepaid tuition account, which lets you lock in school credits with qualifying schools at current prices. This can be useful if you know which school your beneficiary will attend. Potential drawbacks to prepaid tuition accounts include ongoing administration fees after initial application fees and stricter rules than savings plans when it comes to eligible expenses. Speak with your financial advisor to learn which option might benefit your situation.
When sending your child to school, discuss expenses. Many students can and do work while in school. Be clear about who will be paying for needs and wants. Taking a financial stake in their education can teach kids responsible money management and build their confidence.
It’s important to keep an open and ongoing dialogue with your children regarding financial health. As fixed costs like food and gas continue to increase, understanding the numbers behind the necessities will be vitally important to financial success. Through financial literacy, your family will be better prepared to navigate the effects of money valuation during their lifetimes.
Financial literacy has major benefits at every level, and the principles for proper money management can be taught beginning in childhood using simple concepts. Even if you are starting late, there are steps you can take to ensure your financial security. Remember, there is no better time than now.
LifeSteps Financial has been involved in Financial Literary for Children for several years and frequently speaks to groups of families and children. To learn more about Family Financial Literacy and Money Management for Juniors, contact the LifeSteps Financial team today.
Resources:
https://www.investopedia.com/terms/1/529plan.asp
This report is for information purposes only and is not a recommendation for any particular security. Mention of individual securities should not imply that we own the security or have owned it in the past. In addition, the information provided here should not form the basis for investment decisions. Past performance is no guarantee of future results. This information should not be used in any transaction without the advice and guidance of your Tax Professional. LifeSteps Financial has not independently verified, or attested to the accuracy or authenticity of the information, including any investment performance measurement.
