9 Tips to Invest in Your Kid’s Future
It's no secret—children are expensive. So whether you're expecting for the first time or your family is complete, it's never too early to start investing in your kids' futures. Of course, you may already know how expensive college is, but the cost increases yearly. In addition, if your child decides to attend an out-of-state college, you'll pay even more. Luckily there are several ways to invest in your kid's future, including the following:
- Take Out a Second Mortgage
If your child is starting college soon and you haven't saved enough to pay for tuition, books, and room and board, you might need to get creative to ensure they have access to the best education. You can get a second mortgage on your home to pay for anything from books to travel and college credits to ensure your child has the best opportunities in life. With a second mortgage, you can tap into your home's existing equity and repay the loan over time. Of course, to qualify for a second mortgage, you'll need to have a percentage of your first mortgage loan paid with at least 20% equity remaining in the home after the loan.
Of course, whether a second mortgage is right depends on several financial factors, including interest rates when you take out the loan and how much money you need.
- College Savings Plan
If you have a few years before your kid heads off to college, you can invest in a 529 savings plan that allows you to make monthly contributions. Qualified tuition plans are tax advantages, so the money in the account will grow and be taken out tax-free. There are several savings plans to choose from, but many of them allow you to accrue more in interest than standard savings accounts alone.
Of course, the funds in these accounts can only be used for college, so if your kid doesn't attend college, you'll pay a hefty 10% penalty to withdraw the funds.
- Retirement Accounts
Another way to invest in your children's futures is by opening a retirement account on their behalf. Many Americans struggle to finance their retirement accounts, leaving them unable to retire on time, which can take a toll on their physical and mental health as they age. You don't want your children worried about retirement if they don't have to be. Opening a retirement account for your children can have tax benefits, even when used for education expenses. In addition, it will help them after they've started their first jobs because they won't be so stressed about saving for retirement.
Opening a retirement account is also a good educational experience. Students don't learn about retirement savings accounts in school, and learning about them on their own can be challenging. Therefore, you can open an account when they're young to teach them about the importance of saving money.
- Invest in a Brokerage Account
A brokerage account isn't exclusive to educational purposes like college savings plans. Instead, they can be used for any expenses your child has. Brokerage accounts allow you to invest money into everything from stocks and bonds to mutual funds by working with a financial advisor to invest and grow your money. You can set aside a separate brokerage account for each child and let the money they get as holiday and birthday presents grow over time.
- Savings Account
Everyone needs a savings account. Unfortunately, many people don't open their accounts until they're legal adults. You can save your child frustration and confusion later in life by opening up a savings account in their name and teaching them how they work. Having a savings account can help children understand interest rates and allow them to watch their money grow. Even if you have a low-interest savings account, a few cents a month will seem like a lot to a small child.
- Invest in CDs
The stock market can be volatile, so you might look for a way to grow your child's money with less risk. CDs are a great option because they offer higher interest rates than savings accounts and less risk than brokerage accounts. You can purchase multiple CDs simultaneously with different maturation dates and interest rates to help your child slowly build wealth over many years. These worthwhile investments may take more time to mature than other types of investments, but they're well worth it if you want to protect the money you know your child will need in the future.
- Get Life Insurance
No parent wants to think about what might happen to them, but you should always be prepared for the worst. Life insurance will protect your children in the event of your death. Life insurance will ensure your children and the surviving spouse can maintain their quality of life without your income. In addition, it can be used to fund everything from their education to everyday expenses.
- Encourage Good Work Ethic
If you truly want to invest in your child's future, you must teach them the importance of working for money. You can easily do this by giving them chores they'll receive an allowance for completing. Encouraging them to earn their own money through a job can help them learn how to be more financially responsible adults. In addition, the money you pay them for chores can be put into a savings account so they can watch their money work for them and grow.
- Talk to a Financial Advisor
Not everyone has good money habits or knows where to start when saving money. Once you have children, you'll need to assess your money situation, and the easiest way to do that and invest in your kid's future is to work with a financial advisor. These individuals can offer tips for where and how to invest and even take care of the process on your behalf to ensure your money grows while you sit back and relax. In addition, financial advisors can give you a clear picture of your financial situation to help you make better choices when it comes to spending.
Ashley Nielsen
Ashley Nielsen earned a B.S. degree in Business Administration Marketing at Point Loma Nazarene University. She is a freelance writer who loves to share knowledge about general business, marketing, lifestyle, wellness, and financial tips. During her free time, she enjoys being outside, staying active, reading a book, or diving deep into her favorite music.
