The New Parent's Guide to Financial Preparedness
BY: Brent Landrum
Preparing for a new baby can be an overwhelming, anxiety-inducing, exciting experience. Strollers, diapers, daycare … there are so many decisions to make in what seems like a long time, but really isn’t. If you’re a new mom or dad, like me, you know how quickly nine months pass, and while I thought I was prepared, once my child arrived, I realized that I had no idea! If I can give anyone that is expecting one piece of advice, it’s to add financial planning for your child to your list of to-dos. Trust me, you’ll be glad you did!
But where do you even start when it comes to planning for your child’s future? You have 16 years before you think about a car and 18 before it’s time for college. Seems like so much time to save, but at the rate things are going, prices will continue to skyrocket, and what could seem affordable now may not be when the time comes. Let’s simplify things and start at the beginning.
Define Your Goals
As the parent, do you anticipate paying for any of the following in the future?
- Car
- Secondary education
- Graduate programs
- Wedding
- Other monetary gifts
It’s important for you and your partner to establish a clear understanding of what you intend to assist the child with when it comes to expenses. It’s critically important for you to be on the same page; the child will quickly learn who will say yes and who will say no, ultimately resulting in tension and affecting your bank account.
You should also consider what you can afford. You may want to give your child everything, but it’s important to be realistic with your budget. If you’ve taken my previous advice and revisit your budget annually, you can always make adjustments to what you contribute to your child’s accounts as you advance in your professional career.
Explore Your Options
As with most things, there are lots of options to consider when establishing accounts for your child. Start at the most basic level and decide what deposit accounts are needed right now – perhaps a junior savings account – and then look at long-term goals. Financial needs will grow with the child, and by establishing a relationship with your bank and/or financial advisor, you can address them over time. Here are some simple account options to consider.
- Junior savings account (JSA)
o Meant for children under the age of 18.
o Can be setup as a custodial account, meaning that one parent can be designated as the custodian, and access to funds must be granted by that individual’s permission.
o JSAs also allow for the naming of a successor custodian and power of attorney, which is helpful when both parents want to have rights to the account.
o Most times, when a child turns 18, the bank will look to switch the account so that the child can now take full ownership of the funds.
- Checking account
o At this stage in your child’s life, they do not need a checking account, so if this is proposed, genuinely think about what is needed in the here and now. A good age to revisit this type of account is when they are turning 16 or getting their first job. When that time comes, talk to your banker about how to set up a checking account a way that allows you to safeguard your child from making financial mistakes early.
- Investment accounts
o Speak with your financial advisor before considering any of the following:
- Education savings account
- Stocks
- Bonds
- Mutual funds
Getting Started
First things first: you cannot begin the account-setup process before the child is born, but you can have discussions with your partner to create a plan for what you will establish. Once your bundle of joy arrives, you’ll need to file for his or her Social Security number, which typically takes six to eight weeks have in hand. Keep all the money that grandparents, aunts, uncles and more have given you for baby in a safe space, and once you’re ready, make an appointment with your banker and bring the following:
- Child’s Social Security card
- Birth certificate (may not be needed, but better to have it available just in case)
- Your identification
- A general idea for how you want things set up (custodial, successor custodian, POA)
- Money! Start your child off right by making their first deposit
Remember: nine months may seem like forever, but it really isn’t, so that’s why you should rely on your banker and financial advisor to help guide you through what accounts are best for your child. If you’re not ready to go full-on investment style, that’s okay, you can start simple and grow over time. Life is always throwing us curveballs, and this is the best one! Take it one step at a time and trust your gut. It’s true when they say, YOU will know what’s best for YOUR child!
If you'd like to sit down with one of our personal bankers to discuss what options may be best for you and your child, please don't hesitate to contact us to schedule an appointment, or simply drop by your closest Lake Ridge Bank office today.