From the moment they are born, children are kryptonite for financial practicality. Whether it’s making sure they are fed, clothed, going to school and have a line-up of after-school clubs, children are a financial wake-up call that forces you to reflect on your financial status.
And don’t panic – you are not alone. A survey of parents with children aged 18 and under found that despite the fact that 62% of parents recognise that they are the single biggest influence in shaping their children’s attitudes towards money, many lack the confidence (52%) and knowledge (58%) to do this. 60% of parents surveyed were also concerned about their children’s ability to successfully manage their finances in the future.
So with 18 years (or less) ahead of financial dependence, it’s never been a better time to do a few simple things to make sure you’re ready, financially speaking. Here are some simple but effective steps:
Build a healthy emergency fund
Building 3-6 months worth of living expenses in an emergency fund is important for everyone, but is particularly important when you are a parent. The recommended amount increases to 6-12 months if you have children to add an extra cushion to your savings for any unexpected events like sudden unemployment or a boiler breaking.
Start your children’s financial education early
Many parents don’t feel comfortable talking to their children about money. A recent survey found that the majority of parents do not speak to their children about financial topics until they are fifteen years or older. But a good financial grounding from a young age is essential. You can easily do this by involving your children in discussions around how to approach money early by giving them a small amount of pocket money from a young age and a piggy bank to get them into the practice of saving. This early interaction with money will pay off dividends later in their lives when the stakes are higher.
Invest in your child’s future as early as possible
All parents dream about setting their children up for the future in a way that will help them achieve their goals and ambitions. A JISA (Junior Individual Savings Account) is the perfect way to do this – it’s a tax efficient way for parents and guardians to save for a children’s future. It lets you stash up to £4,260 for your children annually and can be saved through a cash or stocks & shares option. It’s also important to remember that you can start with any amount. Fifty pounds a month can still make a big difference even if you don’t hit the annual limit every year. Added bonus? Anyone can contribute to the fund – including generous parents, grandparents, extended family, siblings or friends.
What’s even better is that the money contributed can’t be withdrawn or used until your child turns 18, so there’s no temptation to dip into the money before it’s had time to mature. JISAs are growing in popularity with 907,000 parents opening one in 2017/18. The earlier you get started on this one, the more time you have for your children’s savings to grow.
Re-think life insurance
Life insurance isn’t typically top of the list for parents but it should be. If tragedy strikes and you or your partner are forced to raise your family alone, taking out insurance will be a life saver for your family. The general rule of thumb is that your family should be covered for 5 to 10 years of your income. This money can then be used to clear any debts and provides your family with financial security for the future. Another important aspect of insurance to consider is critical illness insurance. It’s a separate long-term insurance policy that covers a variety of serious illnesses that could put you out of work for a time. When you’re a parent, it’s never too early to take out a policy – just make sure you research and shop around for the best one!
Don’t forget about your own pension
Life is very busy with a new baby or young family, but it’s important you don’t forget about your own financial future. Only save what you can for your child’s future – don’t compromise your own retirement fund to do so. Your pension is a key part of your financial health and means you are less likely to be a financial burden on your children in old age. So, make sure you match contributions with your workplace pension pot or consider opening a self-invested personal pension (especially if you are self-employed or looking to combine your old pensions in one place). Pro tip: take the moment to update your pension beneficiaries with your employer or your SIPP provider to make sure you have a plan in place.
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