financial planning

The 4 Best Investment Strategies for Your Child's Financial Future

It can be overwhelming to think about your children’s future finances when, let’s be honest, we’re still trying to get it all together as adults. Start here with easy money tips to create a manageable strategy to help your kid be financially successful from the word go.

Guest Author: Rachel Jack

Still reeling from the fallout of the global pandemic, the economy has not recovered and has caused many families to reevaluate their financial priorities, trying to find a balance between what they need now and for the future. However, many parents of children 17 years old or younger would say that saving for their children remains one of their main goals. This is especially true in lower-income households, where the desire to invest in their children’s future is prioritized over things like retirement.

Arizona families may also be rethinking their savings for their kids, as the number of children who now live in high-poverty areas has reached 15% as of 2019—a number that may have only increased. Preparing your child for life beyond playgrounds and homework is a crucial challenge to overcome for any parent, regardless of their financial state. Deciding how to start saving for your child’s future success takes time and strategy, and it’s essential for parents to partner with the right organizations and experts to figure out what the best course of action will be. Any great finance or accounting manager knows they have a big-picture impact on the lives of their clients.

Financial planning is not a responsibility to be taken lightly or put off in the hopes of a day when you finally strike gold, and parents should take the management of finances on behalf of their children seriously. An advisor can help offer the right perspectives and expectations for your investment plans. If you’re wondering what direction is best for you and your child, consider the following strategies they're likely to recommend:

Invest in a 529 plan

If you’d prefer to focus on your child’s education expenses, a 529 plan would be a good option. There are no limits to contributions, and they grow tax-free. You also won’t have to pay taxes upon withdrawing from the plan to pay for education expenses like tuition, campus fees, textbooks, and the like.

You can opt for a prepaid plan, which would mean paying college tuition at its current price, or a savings plan that allows you to invest your money and build a balance. Even if your child may not end up going to college, you can change the plan’s beneficiary at any time. Arizona residents and tax payers are also exempted from federal tax and Arizona income tax on qualified distributions.

Open a UTMA or UGMA account

The Uniform Gift to Minors Act (UGMA) and Uniform Transfer to Minors Act (UTMA) accounts are custodial trust accounts set up for the benefit of minors and controlled by parents, relatives, or guardians. Once a child reaches legal age, all the assets in their account will be transferred to them. UGMAs and UTMAs also allow cash and securities to be given to minors free of tax implications. The custodians of these accounts can contribute to them and invest the money in various places to grow the balance. These accounts can provide more freedom with the use of the funds, as they aren’t limited to education like 529 plans. The child or custodian can invest, save, and withdraw with more flexibility.

Teach your child about money management early

The earlier children know how to handle money, the better they can manage it. Younger children don’t really have a good grasp on monetary value, especially when their parents are in charge of providing for them. You may already have plans or accounts set up for them, but teaching them the value of saving or investing can increase their assets once they’re old enough to use them wisely.

You can start them young with easy saving principles. For example, they can learn to set aside a certain portion of their allowance to save for something they want to buy or how to budget their money for food and drinks, toys or gadgets, and savings.

Save the traditional way

Even without various accounts or plans, you can aid your child in starting off on the right foot. By opening up a traditional savings account anyone in the family can contribute to, you’re giving your kid a simple, no-hassle way to ensure money is being safely set aside.

They’re suitable for either short or long-term goals but generally offer your kids more freedom with how they use the funds the account contains.

Insider tip: Banks and credit unions are always looking to bring younger generations into the world of banking early on, so kid or youth savings accounts often offer higher dividends that can be of greater use to your child in the future.

At SunWest, we understand that providing financial literacy to parents and their children is essential. We also know that you need a solid base to get started, which is why our youth savings accounts start at 3% APY.

Ready to get started in sharing your financial knowledge with your kids? SunWest has partnered with MoneyEdu to give you access to free lessons, tools and more designed with the whole family in mind. Just use MYSUNEDU to register.

October 10, 2023

Published by SunWest Credit Union

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