TIPS FOR FINANCIALLY HELPING YOUR
CHILDREN…EVEN
WHEN THEY’RE ADULTS
You can help your children financially in many ways, even
after they are well into their adult years—and most of those ways don’t
involve giving them money.
Here are a handful of tips from CERTIFIED FINANCIAL
PLANNER™ practitioners about how to make your children’s financial
lives a little easier, often in ways you might not expect.
Teach them good money management skills and money values.
Sure, you can donate cash to their savings account, EE bonds in their
name, or shares of stock or mutual funds. But the gift that really keeps
on giving their entire lifetime is a sound financial education backed by
the demonstration of your sound money values.
If you’re unsure of how well you can do this yourself,
have them work with your CFP® financial planner. Also give
them money management material designed for children of different ages and
have them take classes geared toward their ages. They need to learn such
financial skills as budgeting, investing, retirement planning, insurance,
taxes, charitable giving, how to read a pay stub and balance a checkbook,
and what role money should play in their lives.
They may never thank you for this gift, but these skills
and values will likely earn them far more money, and make better use of
that money, than all the monetary gifts you ever make to them.
Set a good example. You can teach them the best money
management skills in the world, but if you don’t exemplify good money
management judgment yourself, they probably won’t either.
Open an IRA. Okay, okay, this involves giving them
cold cash. But think of it as seed money, pump-priming money, a chance to
reinforce the message that they will likely have to fund most or all of
their retirement, as employer pensions are disappearing and Social
Security may only provide minimal help.
When they first start earning taxable
income from outside jobs or even from household chores such as mowing the
lawn, have them open an individual retirement account. Most experts
recommend a Roth IRA, which is funded with after-tax money, because the
tax-savings benefits of a traditional IRA are minimal for children earning
little income. With the Roth, they can later withdraw the contributions
and the earnings tax free.
Explain why they need an IRA (for that retirement they’ve
got to fund, remember). Then match dollar for dollar whatever amount they
can realistically invest in it (your combined contributions can’t exceed
their earned income for the year or the 2005 maximum of $4,000, whichever
is smaller).
Take care of your own retirement. Fund your retirement
even if it means your children have to pay their own way through college.
They can get loans or go to a less expensive school. There’s no
financial aid for retirement if you fail to save enough, and you want to
avoid asking them for handouts in your old age.
Don’t be a financial burden on them. This means not
only making sure your retirement is properly funded, but that you can pay
for medical care and possibly long-term care—two huge expenses during
retirement many people overlook. Review your medical coverage, including
possible retiree health benefits, Medigap insurance once you start
Medicare, and long-term care insurance. Spare your children the financial
burden of having to financially assist you at a time they’re probably
trying to save for their own retirement and put your grandchildren through
college.
Have an estate plan in place. Basics include a will, a
financial power of attorney, a living will, and a health care power of
attorney (also known as a health care proxy). You may or may not need
additional planning, such as trusts or a family limited partnership, but
those four basic documents will go a long way in giving your children
flexibility and guidance should you become incapacitated (when powers of
attorney become invaluable) or when you die. An updated estate plan also
will ensure that your children inherit what you wish them to inherit.
Keep your financial records in order. Give your children a general
idea of the value of your estate and your plans for it, and let them know
where they can find financial documents upon your incapacity or death.
This is sensitive stuff, but it beats leaving them with a financial mess
at a stressful, emotional time.
April 2005 —This column is produced by the Financial
Planning Association, the membership organization for the financial planning
community, and is provided by McGuire & Co, LLP , a local member of the
FPA.
