As a new parent, or an expecting one, your child becomes your number one priority. Making sure that they are kept safe and that their future is financially secure is important. And teaching them about the world of money can set them up for future success. Read on to find out how.
There are so many things to consider as a parent. One aspect that is often overlooked is planning for the child’s financial future. It’s a well-known fact that having a child is an expensive life event, however, by looking ahead you can avoid certain financial roadblocks. Consider having a financial plan for your child a few months after they are born.
Take into account the following
- A child growing up with special needs: If your child needs ongoing treatment or care, it is a good idea to keep funds set aside especially for it. Therapies and specialised doctor appointments will have an impact on your finances, so start saving for them as soon as you can.
- Education: The decisions around a child education is never an easy one. Public vs. Private, extramural activities or not, make sure that you have planned ahead for all the necessary expenses that come with putting a child through school.
- Allowances: Giving your child an allowance is a good way to teach them how to take control of their own monies, even at a young age. It will also give you a means to save, along with your child, for their future.
- Death of a parent: These are the worst-case scenarios that you and your partner need to consider. Are there plans in place and funds set aside should one of you pass? Make sure that your will is up-to-date.
- The first car: Every teenager dreams of their first car. Talk to your child about the finances surrounding getting a car and help them start to save up.
- Marriage: Although it may be a long way away, marriage is an expensive milestone. Start saving now and even better, steer away from extreme lavish ceremonies and instead help your child put away towards a down-payment on a house.
Steps to secure your child’s financial future
By considering the above scenarios and situations at an early stage of your child’s life, you should start creating a financial plan. Here’s how;
Adjust your budget
A budget will help guide your saving efforts and highlight where you can cut down on unnecessary expenses. Through this, you should be able to increase your current savings to accommodate your child’s needs. Six months of income is a recommended amount to have put away as an emergency fund.
2. Get Life insurance
Make sure that your child and your partner are covered under your life insurance so that if anything were to happen to you, they will be financially supported. Your life insurance should cover any outstanding debts as well as support your child until they are independent, this might equal 10 to 20 times of your overall income.
3. Start investing or saving for their education
Education is expensive in South Africa and fees continue to increase. Set a goal and invest early so that your savings will grow over time or set up an education policy so that you will not need to take out a student loan when the time comes.
4. Write a will
A will ensures that your estate and money are distributed as per your wishes when you pass. Without a will, the State has to make these important decisions on your behalf, which may not be what you want.
5. Teach your child about finance
As your child grows older, teach them the importance of saving and other financial concepts. Be open and encourage conversations about the value of money and how to handle it responsibly.
How to teach your child about money
Educating your child on the world of finance and money does not need to be a serious exercise. The concept of saving can be taught by rewarding your child’s good behavior, performance at school, or chores and encouraging them to save their rewards in a piggy bank or a glass jar. Talk to them about how their money is growing through their action of putting money away.
At the age of seven or eight, talk to them about how money works in a family, for example having a job, needs and wants, budgeting, etc. Use games to teach them about sharing and set an example with your own finances. When they’re older, talk about credit cards, interest, and other more complex topics.
It’s essential to plan for your child’s financial future, beyond the initial stages of their life. This will give you more time and allow you to focus more on creating good memories. Financial education is a continuous process, make the best of your child’s younger years while they’re curious to set them up for success.