Having children is probably the greatest change in life and affects practically everything we do and think about. Finance is not an exception. The following are some specifics of children’s financial planning.
No income and no expenditures
With the exception of rare talents in arts or sports, most children don’t have regular income. Some older children work part-time, weekend or summer jobs, but in general their income is still very low.
Children also typically don’t have regular expenditures (in their own name), as their living costs are financed by parents. This can again change once they reach their teens and may develop hobbies and other needs that cost money.
Financial products for children
Some financial products, like credit cards or many kinds of investment accounts, are inaccessible to children. Other products still require a parent’s consent or signature.
On the other hand, there are some financial products designed specifically for children. Typical examples are children’s current and savings accounts, which often have different terms than similar accounts for adults. In many ways they are more favourable, for example there may be zero fees and no minimum required balance. However, there are also restrictions, for example overdrafts are not permitted on most children’s accounts (and for a good reason).
The range of children’s special financial products are not limited to bank accounts though. Some investment companies offer children’s investment plans, where parents can save in their children’s name (although making the decisions themselves until the child reaches adult age). These plans, like the bank accounts, often have more favourable terms, as the companies are trying to build relationships with children as future customers.
Teaching children about money
The top priority of getting children involved with financial products, such as their own bank account, is often to teach them about money and help them develop sound personal finance habits.
Here you can find more details and tips on teaching your children about money.
Saving for college
Most parents want to save money for children’s college, especially in countries where higher education is expensive. The earlier you start, the easier it is. Therefore, many parents start when their child is very young. Of course, you can’t rely on your kids to save for college on their own; typically parents save in their own name and make the decisions themselves.
Here you can find tips on saving for your children’s college.
Estate planning, wills and trusts
An important part of financial planning for your children that is often overlooked is making sure you are ready for the possibility of your premature death, however unlikely and uncomfortable to think about it.
As a minimum, you should consider writing a will, which is a legal document where you can formulate your preferences regarding who gets which parts of your possessions and who will be the guardian of your children. You can also set up a trust with your children as beneficiaries. In order to be legally correct and effective, these arrangements will of course require professional advice.
Your own and your children’s financial planning
Your children will have “their own” money, especially as they get older, and should be given freedom to decide how they spend it. However, in the case of a big decision or a big purchase, like saving for college or for your children’s future, financial planning for yourself and your children can’t really be separated and should always be considered together.