How To Set Your Child Up For Life Financially

We all want what is best for our children. Hopefully they’ll be happy, healthy, and successful in whatever they choose to do. Obviously, you can’t guarantee that, but parents will always do their best to help make sure their kids have a good future. One aspect of that is helping them with their finances. No, you don’t need to fund their lifestyles as adults, but there are ways to help set your child up for life financially. It definitely takes proper planning, dedication, and some hard work, but there are many options available for you to put your kids in a better position.

Educate Them

First off, it’s important to educate them. If they don’t know how to manage money, then nothing else will matter. If they can’t handle any money you leave them, then it will end up squandered. So, no matter what else you do, make sure teaching them basic financial skills is a top priority. In another article, I went over 10 important skills to teach your kids.

Overall, it’s important to discuss things like budgeting, how to be frugal, and the danger of things like impulse shopping. The more you encourage entrepreneurial endeavors, and discourage impulse spending, the better off your child will be in the long run.

DIY

Another important thing to teach them is some basic DIY skills. Now, your kid doesn’t need to be an expert handyman and neither do you, but it’s valuable to know the fundamentals. Not only does being able to do basic maintenance and repairs yourself save money, but it also gives them a strong sense of independence. The more capable they are on their own, the more confident they’ll be, which in turn helps them become more prepared for whatever life throws at them. This doesn’t have to be complicated or intense, just be sure to include them in projects around the house.

Don’t Forget Social Skills

Of course, it’s incredibly important to still teach them social skills. Make sure they get socialization in and become good communicators. Those with great social skills may have a lot more opportunities than those who don’t. It’s not the end of the world if they don’t have them, but at least try to give them the foundations for good communication. Beyond just financial opportunities, it will help them in their personal relationships too!

The Value Of Money

Money is obviously used to meet our needs and wants. Housing, food, clothing, and hobbies all require money. There is no shame in using your money for those things (or really, whatever you want). I know some of my readers like to get exceptionally frugal at times, but don’t forget that it’s okay to spend money and that there is more to life than just being hyper frugal.

Make sure your kids find a good balance and understand the purpose of money. I know we’re all eager to leverage it for independence and more free time, but occasional shopping is also perfectly fine. It’s important to teach them all of these crucial skills, but make sure they realize there is a point where it can become obsessive and unhealthy – there is much more to life than money after all.

Encourage Entrepreneurship

As I mentioned earlier, encourage any entrepreneurial endeavor they try to pick up. Not only that, also help them build a strong work ethic – it will give real meaning and value to money. It shows just how hard they may have to work to earn a dollar. Additionally, check out my article on lucrative side hustles. Now, they aren’t intended for kids, but it may be something you could do together. Alternatively, it may give some ideas for what they could try to start on their own. Don’t put a lot of pressure on them in this aspect though, let them approach it themselves and try to keep it fun.

Make Money A Less Taboo Topic

It’s important to be able to talk about money, especially with your partner. I’m not saying that you need to share all the nitty gritty details with the kids, much less the scary aspects, but it’s important to at least be able to talk about money with your children. Many parents don’t talk with their kids seriously about finances, and when they grow up it puts them at a severe disadvantage. You don’t have to share everything, but at least try to introduce them to things along the way and explain your reasoning for certain financial decisions.

Involve Them

It’s important to involve your kid in the basic financial decisions of the household. By this, I mostly mean the day to day tasks you may have to do. For example, you can start by teaching them about budgeting at the grocery store. Keep it simple, and fun if possible, but let them know the limit on what you can spend and have them help you with the grocery shopping.

Having them take part in this process can teach them a lot of simple financial skills, especially while they’re young. Also, this gives you the opportunity to set a good example and always fall within your set budget. If you can find a way to turn this process into a game – even better!

Have Wealth Yourself

If you are already wealthy, that makes it easier to leave your kids well-off. With that said, teaching them financial skills is important because it lets them become successful on their own, and if you leave them money they’ll be less likely to waste it. I would prioritize teaching them how to manage money, to ensure they have the greatest chance at a financially secure future. However, once that is done, everything you leave behind for them should be a huge boon.

Do Proper Estate Planning

Once you have a family, proper estate planning is a must. Even if you aren’t leaving your children a lot of money, it’s important to have a detailed estate plan and a will so that everything is handled smoothly. If you do have a significant amount of money, then this planning process can help you make sure that as much of it as possible reaches your kids. If you don’t prepare accordingly, there can be issues and the tax burden could be much higher than it needs to be. Play it safe and come up with a plan once you have a family!

Insurance

As a part of proper estate planning, it can also be useful to have a healthy life insurance policy. This helps make sure funeral arrangements can be paid for, that your children are provided for (at least for a few years), and you may even be able to leave a lot of money behind depending on the size of the policy. What’s right for you will depend on various factors, but it’s always a good idea to research your options with insurance.

Leverage A 529

If you fully expect your child to attend college, then a 529 can be a great option for you to invest in their future. It’s incredibly useful for expenses related to their education, but it has penalties for non-educational costs. So, if you’re confident all the money will get used for the intended purpose, it’s definitely fantastic! All-in-all, it’s useful and that one major drawback isn’t particularly hard to avoid.

Add Them To A Credit Card As An Authorized User

If you want to help them build their credit, adding them as an authorized user to your credit card is a fantastic way to help them out. By the time they’re an adult, it’s likely they’ll have a strong credit score. That can give them more opportunities out the gate, especially with lower interest rates on any potential loan. It’s a really easy tactic to give them an early boost, but make sure you don’t miss any payments and accidentally hurt them more than you help!

They Need Experience Managing Their Own Money

Once they reach the teen years, you should be able to open up a checking or savings account with them. The process is straightforward, and there are many great options like Axos Bank’s First Checking. Once you have it open, help them learn how to manage it and you’ll have them better prepared for adulthood.

Introduce Them To The Stock Market Too

If possible, introduce them to the stock market and let them learn the ins and outs of investing and the power of compound interest. There are multiple options for this. Maybe give them a small amount of money to test things out and see the results, show them your portfolio, or turn it into a game that they can track (but with no real money involved). However you want to go about it is fine, just introduce them to basic investing concepts.

Open Up A Roth IRA For Them

If possible, open a custodial Roth IRA for your son or daughter. They’ll need an earned income to participate. For that, if you have your own hustle or business, it is easy to provide them an income. They have to do some work for the income, and the pay has to be market level, but it shouldn’t be hard to have your kid to do enough work to warrant a decent lump sum to their IRA. For context, putting just $100 per month into a custodial Roth IRA until they’re 18 can have an outstanding value by the time they reach retirement age.

Remember To Prioritize Your Own Retirement

I know this can be a hard thing to do, but remember to prioritize your own retirement. You may not be able to leave them much money – and that’s perfectly fine. Instead, focus on making sure your future is financially secure, and give them the skills and tools they need to forge their own path. Leaving your child money may be a boon, but it’s far more important for them to have the fundamental skills they need in order to succeed.

Conclusion

If you have any other tips or suggestions for how to set your children up, let us know in the comments! To stay up to date on articles like this, be sure to sign up to the Bitter to Richer newsletter. In our welcome email we send out a free budgeting template and financial goals worksheet – both of which can be useful to go over with your child.