GMR 154: Saving for Kids and Teaching Them to Value Saving

Did you know the cost of raising one child from birth to 17 years old is over $225,000? Raising children is not cheap, and unless you plan for it, you may not have enough to provide for some of the more essential expenses ahead. In this episode of GMR, we talk about saving for the different costs you’ll have for your kids while teaching them to prioritize and value saving themselves.

Show Notes

Cost of raising a child - Check out this informative article on the cost of raising a child.

Saving for and Teaching Your Kids the Value of Saving

1. Begin with a personal financial assessment

  • Get an accurate picture of your own budget.

    • How are you managing?

      • Spending on purpose?

      • Saving for future needs (emergency fund, long term savings)

      • Do you have enough margin? This is where saving for your kids should come from.

    • Adding a child or two and starting to save for their future needs should not be done by sacrificing your future. 

2. Open a savings account for your child

  • Save birthday money, and holiday gift money - grows over time.

  • If your child earns an income, you could also help them open a Roth IRA account - gets a head start on long-term savings.

    • Parents and grandparents can make gifts into a kids’ IRA.

    • Can be used for certain expenses 

      • Education expenses

      • Buying a house

      • Certain emergencies

 

3. Save for your child’s life experiences

  • Vacations - fun experiences

  • Mission Trips

  • Study abroad

  • Save for a car (match 100% of what they save up to an amount).

  • Funding these without first saving for them can set your own financial readiness and health backward.

4. Save for your child’s college

  • 529 Plan

    • Earnings from 529 plans are not subject to federal tax and generally not subject to state tax when used for qualified education expenses such as tuition, fees, books, as well as room and board. 

    • Contributions made to the 529 plan are not deductible.

    • One of the many benefits of saving for a child's future college education with a 529 plan is that contributions are considered gifts for tax purposes. In 2020, gifts totaling up to $15,000 per individual will qualify for the annual gift tax exclusion, the same as in 2019 and in 2018.

    • You only want to use the investments side of a 529 if you have more than 5 years to invest. (529’s are easy to set up at any major investment broker, like Vanguard, Fidelity, Charles Schwab, etc… you just click “open a 529 account” on their website and go through the process.

  • OPTIONS FOR COLLEGE SAVINGS WITH LESS THAN 5 YEARS TO INVEST

    • CD’s (Certificate of Deposit) saving account - Low risk with a 2 to 3 percent yearly return.

    • Online saving or money market accounts - Low risk and low return, usually 1.5 to 2 percent, but better than the average traditional banks.

    • Trying to find a 529 Plan, check out: https://clark.com/education/clarks-529-plan-guide/

    • Roth IRA - up to $6,000 a year in 2020.

 

Don’t forget to prioritize your own retirement savings

  • No matter what, you shouldn’t save for kids to the detriment of your other goals. Make sure to take care of yourself and your own future first.

  • Kids have more time to save for their future. You have less.

  • College expenses don’t have to be 100% covered by you, especially if you have 3, 4 or more kids.

    • Scholarships

    • Work programs

    • Jobs.

  • Make saving and investing for your own retirement a priority. Then, do what you can to save for your children. 

 

Your Children Have Options to Cover their Education Expenses

  • Putting off college for a couple of years to work full-time and save for education is also an option. This, in our opinion, should be seriously considered, especially if the child isn’t sure what type of career they want to pursue.

  • I, Leo, personally took a break between high school and college, and it proved to be very beneficial.  Not knowing which path to pursue, I got a full-time entry-level job. One year of working in the real world helped me to understand the value of higher education, and to commit to it wholeheartedly.  

 

A recommended guide from bankrate.com - How to save for your child


Resources

Beta Course Application
Blog on leosabo.com - How to Prepare for College expenses. 
Debt tools and other free resources - https://leosabo.com/resources
David’s website - www.stewardshippastors.com

SavingLeo SaboSaving, College Expenses, Teaching Kids to SaveComment