Focus on Your Child’s Financial Future: Building a Strong Foundation
As a parent planning for your child’s financial future is one of the most important gifts you can give them. From college savings to teaching money basics, the steps you take today can make a significant difference in their financial well-being tomorrow.
College Savings Strategies
Nearly 50 percent of families with college-bound students establish dedicated college savings accounts, with the average savings target being $55,342. Around one-third (35 percent) of families utilize college savings funds, such as tax-deductible 529 plans, setting aside an average of $6,844 per family.
Starting early gives you the best chance to build sufficient college funds. A 529 plan offers tax-advantaged growth specifically for education expenses. These state-sponsored plans allow your contributions to grow tax-free when used for qualified education costs.
If you’re playing catch-up with college savings, consider these additional approaches:
- Explore cash value from permanent life insurance policies
- Automate monthly contributions to increase consistency
- Look into state-specific incentives or matching programs for 529 plans
- Look into leveraging home equity through a home equity line of credit (HELOC) or cash-out refinance. (Never overextend yourself, or you could lose your home.)
“Many parents feel overwhelmed by the projected costs of college education,” says Dana Lightner, Vice President at David Lerner Associates. “Breaking down your savings goals into monthly targets makes the process more manageable and less intimidating. Even small, regular contributions can grow significantly over time.”
Beyond College: Building Financial Literacy
College savings represent just one aspect of your child’s financial future. Teaching money management skills lays a foundation that will benefit them throughout their lives.
Start by opening a custodial account, such as a UGMA (Uniform Gifts to Minors Act) or UTMA (Uniform Transfers to Minors Act) account. These allow you to manage assets on behalf of your minor child until they reach adulthood.
For older teens with earned income, a custodial Roth IRA can be particularly powerful. Even modest contributions during teenage years can grow to substantial amounts by retirement age thanks to decades of compound growth.
Teaching Money Skills at Any Age
Financial literacy begins with age-appropriate lessons:
For young children (ages 3-7):
- Use clear jars for saving, spending, and giving
- Play store at home to practice making purchases
- Talk openly about basic money concepts
For elementary-aged children (ages 8-12):
- Provide an allowance with guidelines for saving and spending
- Help them open their first bank account
- Involve them in some family financial discussions
For teenagers:
- Guide them through creating a simple budget
- Explain credit scores and responsible borrowing
- Consider adding them as an authorized user on a credit card
- Discuss college costs and potential career earnings
Building Credit Responsibly
Establishing good credit early gives your child an advantage. Starting with a secured credit card or becoming an authorized user on your account can help them build credit history safely.
Teach them these credit fundamentals:
- Always pay on time
- Keep credit utilization low
- Monitor credit reports regularly
- Avoid applying for multiple credit lines at once
By having regular conversations about money and leading by example, you’re setting your child up for financial success. Whether through dedicated savings accounts, investment vehicles, or daily money lessons, these efforts create a solid financial foundation that they’ll benefit from their entire lives.
Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.