Insurance

5 Ways to Set Your Kids Up for Financial Success

By Jason Newcomer

May 24, 2021

5 Ways to Set Your Kids Up for Financial Success


Key Points – 5 Ways to Set Your Kids Up for Financial Success:

  • Save, Give, Spend – A Primer on Budgeting
  • Introducing Your Kids to Investing
  • Saving for Education Expenses
  • Proper Estate Planning
  • Insurance
  • 4 minute read

5 Ways to Set Your Kids Up for Financial Success

In about a month, my wife, Lauren, and I will be hosting a birthday party for our first-born daughter, Remi, who will be turning a year old. Every night when we say our prayers before placing her in her crib, Lauren and I think about how we would do anything for her. 

We want to do everything we can to make sure she has the best life possible. We want her to have good values and morals, a good education, and above all else, be a kind person. In addition to those things, we want to be sure she has the tools to create financial success for herself. 

We plan to help her along the way, contributing to her college savings account, teaching her how to save her own money, and eventually teaching her about investing. There is no single best way to go about this, but it has been my experience that the best teachers (at least the best teachers I have had) aren’t the ones that give you the answers. Instead, the best teachers provide you with the tools and knowledge you need to solve the problem on your own.

1. Save, Give, Spend – A Primer on Budgeting

When teaching your kids about saving and spending money, there is no shortage of ideas on different approaches to take. 

One method is the “envelope system” made popular by Dave Ramsey. The gist of this method is there are three categories that money is used for, which can be visually represented by three envelopes. 

When your child receives money as a gift, an allowance, or income earned through a job, a certain amount of the money goes into each envelope. For example, if they make $20 for doing some chores over the month, they can place $10 in the “Spend” envelope, $3 in the “Give” envelope, and $7 in the “Save” envelope. 

This method teaches children about budgeting, the importance of saving and emphasizes charitable acts. Instilling these things at a young age can be beneficial for a child’s long-term financial foundation.

2. Introducing Your Kids to Investing

When your child is a bit older and can understand delayed gratification, helping them set up an investment account may be a good idea. 

If they earn income from a job, a Roth IRA may be a suitable type of account. One idea is to use a mutual fund to offer long-term growth in a “set-it-and-forget-it” approach. 

Another idea that some parents and grandparents like is to give their children shares of company stock the child may be familiar with, such as Disney, Apple, or Nike. 

With this method, the child sees the account’s value hopefully grow over a period giving them an appreciation for compounding interest growth.

3. Saving for Education Expenses

You may want to help your child or grandchild with their college expenses. According to a 2020 report from US News, the average tuition and fees for a public, in-state college are nearly $10,000.

For a private school, that cost grows to more than $35,000. While your child may be using student loans or scholarships to cover some, most, or all of that cost, you can help them prepare by creating a 529 college savings account for them. 

These plans are a tax-efficient means to help pay for a grandchild’s college costs. As long as withdrawals are used for qualified expenses such as tuition, textbooks, and room and board, they aren’t taxed, and investment earnings grow tax-free. 

However, if you make a withdrawal for a non-qualified expense, you’ll be paying income taxes on that withdrawal plus a 10% penalty on the earnings.

Some 529 savings plans offer a tax break on your contributions in addition to the tax-free growth. Some states don’t even require you to invest in-state to claim a deduction.

For example, contributions to any state-sponsored 529 plans are deductible from Kansas taxable income up to $3,000 per beneficiary annually (or $6,000 per beneficiary for a married couple filing jointly).

For grandparents, you can also make contributions to your grandchild’s 529 savings plan. In addition, if you’re looking to help out with tuition costs while avoiding the potential need to file a gift tax return, paying the tuition bill directly to the institution may be a good strategy. Learn more about 529 plans here

4. Proper Estate Planning

Planning for the unexpected can also be worthwhile for setting your children up for financial success. Having your estate plan in order will address many planning issues, such as who will be your child’s guardian should you (and your spouse) pass away prematurely. 

By planning in advance and getting your estate plan organized, you’ll likely be saving your children and other family members a lot of hassle, stress, and money. We have written many articles on estate planning, which you can find here.

5. Insurance

Life insurance can also be a valuable tool used to protect your family and ensure they are financially taken care of in the event of early death. In 2015 the USDA reported that when you adjust for inflation, it may cost as much as $284,570 to raise a child from birth to the age of 18. Add on those college costs from earlier in this post, and the numbers are staggeringly high. Kids are expensive! 

If you were to unexpectedly pass away or become disabled and unable to earn the same income, you would probably want to make sure your children are financially supported.

However, it’s essential to have the right insurance policies in place. Make sure that you aren’t being sold insurance for the sake of having insurance. For more on this, check out this video from Dean and Bud.

Most of us don’t want our kids to grow up with a silver spoon in their mouth, never learning the value of a dollar. However, it’s a natural desire for parents to want the best for their kids. By taking a few of the steps above, you’ll be on your way to set your kids up for financial success later in their lives. If you’d like to speak with one of our financial advisors about your financial plan, schedule a complimentary consultation here.

Jason Newcomer
CFP®, AIF®, EA | Financial Planner


Schedule Complimentary Consultation

Select the office you would like to meet with. We can meet in-person, by virtual meeting, or by phone. Then it’s just two simple steps to schedule a time for your Complimentary Consultation.

Lenexa Office Lee’s Summit Office North Kansas City Office

Investment advisory services offered through Barber Financial Group, Inc., an SEC Registered Investment Adviser.

The views expressed represent the opinion of Barber Financial Group an SEC Registered Investment Advisor. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Barber Financial Group does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.