The Kid Factor: Planning for a Child’s Financial Needs

With the joy of raising children comes the important responsibility of setting them on course for a secure future. That means much more than providing food, shelter and clothing—it means helping them to be financially prepared adults.

Financial Security for Children: What Everyone Needs to Know
The day a child enters your life is the beginning of a personal and financial journey. As children go through the stages of development, caring adults in their lives have much opportunity to help prepare them for the future. Beginning at birth and continuing into adulthood, there are several key ways to help children become financially responsible adults.

Consider:

• Financial Set-up
  Be sure you have a will to provide for the child and designate a legal guardian to be responsible for the child if the parents die or become incapacitated. Add the child to your health insurance plan and consider adjusting levels of life insurance, disability insurance and flexible spending accounts to accommodate additional needs. Review the number of allowances on the W-4 form on file with your employer and add the child as appropriate on insurance policies or other legal documents.
• Financial Literacy
  Perhaps the most important thing you can do for children is to teach them how to manage their personal finances. These basic skills will be the foundation of long-term financial decisions, and will serve them well throughout life. Start early to help them practice responsible saving, careful spending, charitable giving and using their talents to generate income. Tools and ideas for parents, teachers and kids of all ages can be found on www.themint.org.
• Education Funding
  A college or a technical education prepares a child for a productive and successful life. Starting early to save for future education lets you take advantage of compounding and build these assets over time. Your financial representative can help you develop an educational savings plan strategy best suited to your needs, with vehicles including educational savings plans (529 plans), a Coverdell Education Savings Account, a Roth IRA or other investment products. Putting educational savings accounts in a parent’s name is a good choice for most families, as it can offer more flexibility for using the funds and have less impact on a student’s financial aid.
• Gift Opportunities
  Adults who want to pass on significant assets to children or grandchildren can take advantage of new laws that allow them to gift up to $5 million ($10 million per couple) with no gift or generation-skipping tax through the end of 2012. The law applies to gifts to children, grandchildren and trusts.
• Trusts to Protect and Distribute Funds
  A trust arrangement offers a way to distribute assets according to specific instructions, support family members, reduce income and taxes, and allow control of funds in the event of a disability. Some people use a trust to provide lifetime expenses for family members, or dependents with special needs; others choose it as a means to control disbursement of funds to heirs or charities.
• Life Insurance Protection and Cash Value
  Permanent life insurance on a child starts them off right, with protection and the opportunity to build cash value over time.  Paying the comparatively low annual premium on a child’s policy will build cash value that can help them get a strong start when they reach adulthood.  This cash value can be tapped to fund higher education, a home down-payment, a wedding or a new business venture at a time when peers are just beginning to save for their dreams.
• Personal Growth Opportunities
  Today’s young people have a dizzying array of choices to develop their interests and talents, many offered well before college. Adults who want to provide children with full access to available opportunities—from music lessons to sports experiences to educational travel—will benefit by starting to save early to accumulate the required funds.

Children give us the opportunity to share what we know and challenge us to guide them on the right path. Teaching them how to manage money and achieve financial security is among the most important and lasting gifts for children. But it takes a financial commitment to give them the full benefit of life’s opportunities. Your financial representative can help you to create a plan for achieving your personal goals and supporting your children in theirs.