Planning for Your Child's Future

When Should Financial Planning for a Child Begin?

Parents often begin thinking about their children's financial future when college approaches.

But planning can begin much earlier.

Time can be one of the greatest advantages a child has. Money or financial resources established while a child is young may have many years to grow before that child reaches adulthood.

That is why parents and grandparents may want to ask:

“What can I put in place today that may give this child more choices tomorrow?”

What Are You Planning For?

A child's future involves much more than college.

You may want to help provide money for:

• College, vocational school or other education.
• Starting a business.
• Purchasing a first home.
• A wedding.
• Emergency savings.
• Building long-term financial security.
• Leaving a family legacy.

The right strategy depends upon what you want the money to accomplish.

Why Does Starting Early Matter?

Starting early gives money more time to potentially grow.

One reason is compounding.

When money earns interest or growth and those earnings remain in place, future growth may occur on both the original amount and amounts accumulated previously.

In simple terms:

Time gives money more opportunity to work.

That does not mean every financial product grows at the same rate or that growth is guaranteed. It means that beginning earlier can provide more time than waiting until a child is approaching college or adulthood.

Can Parents or Grandparents Buy Life Insurance for a Child?

Yes. Depending upon the insurance company and policy, a parent, grandparent or other person with the required insurable interest may be able to purchase life insurance on a child.

The purpose can extend beyond the death benefit. Refer to Life Insurance 101. Purchasing permanent coverage while a child is young may establish early protection, begin accumulating cash value over a longer period, support long-term planning and potentially help protect future insurability depending upon the policy.

Why Would a Child Need Life Insurance?

This is a reasonable question because children generally do not have income that needs to be replaced.

The reason some families purchase permanent life insurance for a child is long-term planning.

A child's health can change later in life. Certain policies may provide options for additional future coverage without the same type of medical underwriting, subject to the contract.

Permanent life insurance may also begin accumulating cash value while the child is young.

This allows the family to establish something today that may continue into the child's adult life.

Can Cash Value Be Used Later?

Depending upon the policy, available cash value may potentially be accessed through policy loans or withdrawals.

Families may consider those funds for future needs such as education, purchasing a home, starting a business or other financial objectives.

But this distinction is important:

Life insurance is not a college savings account, and it should not be presented as a guaranteed investment. Its primary purpose remains life insurance protection. Loans and withdrawals can reduce policy cash values and death benefits and, if not properly managed, may cause a policy to lapse. Refer to Life Insurance 101.

What About College Planning?

College is one goal, but it should not necessarily be the only goal.

A child may attend a university, choose vocational training, receive a scholarship, enter the military, start a business or pursue another path.

That is why some families prefer to think in terms of a Child's Future Fund rather than simply a “college fund.”

The broader question becomes:

“How can I create financial resources that may help this child regardless of the path he or she eventually chooses?”

What About Grandparents?

Grandparents can play an important role in establishing a financial legacy.

Rather than waiting to leave money through an estate, some grandparents choose to begin helping children or grandchildren during their lifetime.

Depending upon their goals, that might involve life insurance, education funding, savings, gifting or other strategies.

Tax and estate-planning consequences should be reviewed with the appropriate tax or legal professional.

Teach the Child, Too

Providing money is only one part of preparing a child financially.

Teaching children how money works can be just as important.

As they grow older, children can gradually learn about saving, budgeting, credit, debt, insurance, compound growth and responsible financial decision-making.

The objective isn't simply to give a child money.

It is to give the child both financial resources and the knowledge to use those resources wisely.

Give Their Future More Time

At Be Smart With Your Money®, we believe one of the greatest advantages parents and grandparents can give a child is time.

Starting earlier may provide more years to build protection, accumulate resources and prepare for opportunities that may arise later in life.

You don't have to know today whether that child will eventually need help with college, a first home, a business or another goal.

You can begin by asking:

“What can I do today to help create more financial choices for this child tomorrow?”