It's Friday and I'm talking Finances. For those keeping track, I have $7 more in my savings envelope. Next week, I'll share more of my journey but some times, probably most times on this subject, others can say so much better than I. This is the case today.

The following is a guest post about setting our kiddos on the right path with money. Financial security is a gift we can give our children if we make the right choices. Thank you to Jackie for sharing her thoughts and resources.

3 Steps Parents of Young Children Should Take to Secure Their Financial Futures 

When children are young, we often spend more time worrying about their eating and sleeping habits than we do their financial needs, but the best time to plan for your children’s financial future is as early as possible. The earlier you start investing and saving, the more time your child’s money will have to grow to make their financial future more secure. There are three steps parents of young children should take to begin putting their children on the path toward financial health.

Invest Their Gift Money

Kids love opening the mail and seeing holiday and birthday cards for them. When there is money inside, kids get even more excited. One of the best things you can do for your young child’s financial future is to invest the money they receive as gifts. In some instances, parents choose custodial accounts that remain in their control until the children reach the age of 18 or 21. Under the Uniform Transfers to Minors Act (UTMA) and the Uniform Gift to Minors Act (UGMA), parents may be appointed as custodians for their children’s accounts; however, children can use the money for any reason once they are old enough to gain control of the account. Other disadvantages of UTMA and UGMA accounts include their negative impact on financial aid eligibility and potential kiddie taxes you may have to pay if your child’s account earns a great deal of money.

That’s why some parents choose in invest in custodial 529 college savings plans. 529 plans are controlled and owned by parents, so they do not harm financial aid as much as UTMA and UGMA accounts can. If you started with a UTMA or UGMA account and want to convert to a 529 plan, you’ll need to sell your investments to do so because 529 plans only accept cash. One advantage of 529 college savings plans is they are tax-free as long as the money is used for qualified educational expenses.

Buy a Whole Life Cash Value Policy for Your Child

While there are many life insurance products available for children, one of the best products to purchase when hoping to secure your child’s financial future is a whole life cash value policy. These policies can compound interest and time and have tax advantages so they build wealth over your child’s lifetime.  Another tip is to choose a policy from a financially stable company that has a long track record and outperforms its competitors.Whole life policies have a death benefit and a cash surrender value (CSV). The death benefit, of course, is paid out when the insured person dies, and it is received free of income tax. The cash surrender value is similar to a savings account that is built into the policy. This value grows at the policy’s guaranteed interest rate and dividends paid by the company. Owners may borrow money tax-free from the CSV or surrender the policy and receive the full CSV amount.

One of the most attractive benefits of the CSV is that it is not taxed while it grows and it cannot decrease once it is posted unless you borrow against it or surrender it. The younger your children are when you purchase a whole life cash value policy for them, the lowest the premium will be and the faster it can grow.

Make Arrangements for Your Property and Assets

No matter the age of your children, you should begin making arrangements for their inheritance. This includes writing a will, naming your children’s legal guardians in the event of your death, and deciding how to divide your estate among them. Some parents choose to put their property in their children’s names early on, while others wait until later in life to do so. There are taxes to consider, and each family needs to make the decisions about their property and estates that are best for all parties concerned.

One other option is to use a Quitclaim Deed to transfer real estate to your children in the event of your death. These forms are best used in low-risk situations involving gifts of real estate, as in transferring property from parents to children.While parents do not like to think about the contingencies they need to plan for in the event of their death, it is important to do all that you can when your children are young in order to ensure a secure financial future for them. Investing your young children’s gift money, purchasing a whole life cash value policy for them, and making arrangements for their inheritance are three steps parents should take when it comes to their children’s financial futures.

***

Jackie Waters is a mother of four boys living on a three-acre Oregon farm.

She runs hyper-tidy.com providing advice on being...Hyper Tidy!