It's never too early to start talking to your kids about money. The best financial lessons are part of everyday experiences. Look for opportunities to talk about money, read books aloud and play games that center around spending money wisely. The following articles can help you start the conversation.
Budgeting for a baby
A new baby is something to celebrate, but that little bundle of joy can also add stress to your finances if you are not properly prepared. Not counting the cost of higher education, raising a child can cost more than $230,000, according to the U.S. Department of Agriculture.
Following are four steps you can take to help reduce the financial stress that comes with having a child.
1. Cut down or eliminate credit card debt. Having less debt before the baby arrives will allow you to reallocate more money toward child care expenses.
2. Calculate all monthly child care expenses. Start investigating how much your child care expenses will be. Shop around for day care needs and other necessities. For example, babies typically go through 10 to 12 diapers per day. Find out how much that will cost you per month, as well as wipes, baby formula (if necessary), doctor’s visits, etc. Add everything up.
3. Create a new budget. Add your upcoming child care expenses to your budget, and determine what expenses you can reduce or eliminate before the baby is born. Make as many adjustments as needed to compensate for the anticipated expenses so you can balance your new budget.
4. Implement new budget before the baby arrives. Now that you have set a new budget, start using it two to three months before the baby is born. Since you won’t be using the child care expenses, yet, put that amount into savings to build a cushion for unexpected expenses. This will also help you grow accustomed to your new budget ahead of time.
Tips for Trimming Your Child Care Budget
Now that you have figured out how your finances will change after your baby is born, you can start to look for ways to save on child care expenses. Consider the following ideas.
1. Create a baby fund. Designate a savings account for child care needs and contribute to it monthly. Only use it for child-related expenses.
2. Watch for deals. Ultimately, saving money requires diligence. Keep an eye out for sales on the products you use most, so you can stock up when the prices are lowest.
3. Don’t load up on newborn diapers. Babies grow fast and will not be in newborn diapers for long. Don’t buy more than you need to make sure you aren’t stuck with a bunch of diapers your baby will never wear.
4. Buy cloth diapers. Although it can be a large up-front cost, using cloth diapers can save you money in the long term.
5. Buy second-hand or discount clothes and toys. Again, babies grow fast. Check out local thrift stores and dollar stores for clothes and toys so you don’t overspend on clothes that will not fit your baby for long, and toys that will lose your baby’s interest.
6. Make your own baby food. Look for recipes for how to make your own baby food once your little one is ready to try solids.
How to talk to kids about money
How soon is too soon to talk to your kids or grandkids about money? If they are old enough to ask for a toy or a bike, they are old enough to start learning financial lessons that will last a lifetime.
The best financial lessons are part of everyday experiences. Look for opportunities to talk about money, read books aloud and play games that center around spending money wisely.
Here are some examples of teachable moments to help you get started:
At the bank: When you go to the bank, bring your children with you and show them how transactions work. Get the manager to explain how the bank operates, how money generates interest and how an ATM works. Ask the manager for a tour—be sure to ask to see the vault.
On payday. Discuss how your paycheck is budgeted to pay for housing, food and clothing, and saving for future expenses such as college tuition and retirement.
At the market. It’s easy to give clear examples of “needs” and “wants” using different kinds of foods at a grocery store. Milk (for strong bones) is a need; soft drinks are a want. Explain the benefits of comparison shopping, coupons and store brands.
Chores and allowances. Assign chores and give them a monetary value. Discuss ways to budget and divide allowances. Encourage children to set a financial goal, such as saving for a bike, and help them figure out how to achieve it.
Paying bills. Explain the many ways that bills can be paid: over the phone, by check, electronic check or online check draft. Discuss how each method of bill payment takes money out of your account. Be sure to cover late penalties, emphasizing the importance of paying bills on time.
Using credit cards. Explain that a credit card is a loan and need to be repaid. Share how each month a credit card statement comes in the mail with a bill. Go over the features of different types of cards, such as ATM, debit and credit cards.
Browsing the Internet. While online, explain to your children how valuable their personal information and privacy is to you, to them and to online predators. Discuss the risks and benefits of sharing certain information. Then, as a family, make a list of rules for keeping personal information safe online.
Planning a vacation. Whether you are planning an outing to a local amusement park or a once-in-a-lifetime trip, emphasize the value of saving as a family. Set a family savings goal that involves your children. Figure out the cost and discuss ways everyone can help to reach the goal.
When to start a college fund
College tuition continues to rise every year, yet many parents overlook the importance of saving for their children’s education. For new parents and those wishing to start families, the potential cost can be overwhelming.
Some online college tuition calculators show that for a child that is 5 years old today, the total cost of four years of college will be more than $175,000. According to America Saves, on average, parents pay for roughly 16 percent of their children’s education. So for that 5-year-old, parents would need to save just over $28,000 to cover 16 percent of the cost of their child’s education.
Last year tuition and fees rose about 3 percent from the year before, according to the College Board. While this figure may seem relatively small, it is higher than the growth of inflation during that time, which means the increase has a larger impact. While higher education will always be pricey, parents can make college a little more affordable for their children if they start saving right away.
There are many ways to save that help your contributions grow over time. Each one provides unique benefits:
529 plans: One of the most popular college-saving methods, 529 plans are state-sponsored programs that are normally managed by a financial services firm. Distributions are free from federal tax when used for education purposes.
Custodial accounts: Under the Uniform Transfers to Minors Act, parents and guardians can put money in a trust, and manage that account as trustee until the child turns 21.
Roth IRAs: Not just for retirement, the owner of a Roth IRA account is allowed to make withdrawals from the account before turning 59½ without being charged a penalty if the funds are to be used for higher education.
Contact your financial advisor, tax or legal professional for guidance.