- Personal Finance
Saving Money - Your Kids Future
Education - now you might not have been taught the value of money and perhaps you've lucked out and are in a great job with tons in the bank and your house is all paid off ... does this sound right? If not, if you're like the rest of us, think about what your life would be like now if you had been taught - properly - about the value of money ... perhaps like the "good old days" where kids had allowances and had to do chores and basically everything cost a penny!
Unfortunately (well lets be honest ... those days weren't all golden were they?) those days are well past now, and we have to move forward. To ensure that your children have a bright future though, some of these lessons from a bygone age can definitely help you now and you shouldn't dismiss them.
Some words that people aren't used to hearing - like budgeting and saving - are really necessary not just for your future, but also to ensure that you children have a bright and happy future also.
Depending on the age of your child inform and teach them the true value of money. Make sure that they are on an "allowance" - it doesn't have to be much (& really shouldn't be) and that they get rewarded for the work that they do. I'm not sure if work around the house "builds character" but I do know that being rewarded for a job well done is definitely satisfying. Having a paper-route and getting up at 5am to get it done before school while difficult was worth it at the end of the month when I got paid.
Having to save your pennies for that new toy car or comic book really makes you appreciate it all the more and will not only show them the value of their purchase but might also have the added benefit of ensuring that they take care of it as they know how long it took to get it!
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Now, if your kids are "too young" to learn the value of money and to be honest anything under 5 or 6 really is too young you should still be thinking about it on their behalf. Of course if your children are 5 or 6 or older, you should still be thinking of Investments and Savings also!!
Most governments around the world offer specific vehicles for saving funds tax free for a child's education ... Any opportunity you can take to take advantage of tax-free funds should be grabbed with both hands! While taxes are necessary (and loathed) a chance to save money without paying taxes is a huge plus.
Think about it this way - if you are going to put £20 aside for your kid and based on your income you are paying 40% tax - the real amount of money you are saving (without getting the full benefit to your child) is actually £28!! However, if you can invest in your childs future by direct withdrawal BEFORE you pay your income tax that full £20 can go to your child and you don't need to worry about the extra £8. I'll get into a full description of how taxes and income taxes and things work at a later stage (stay tuned - it'll be gripping!!).
If you are able to take advantage of this, then it is a great thing to really look into, as not only are you saving for an expected future expense, you are doing this without tax implications which is a savings in and off itself!! In Canada you would be looking at RESP (Registered Education Savings Plans) which are distinct from RRSP (Registered Retirment Savings Plan) and in the UK, you would be looking at something called a Child Trust Fund.
In both of these cases, not only are you able to invest tax free, but you are also able to have other family members (grand parents, uncles, aunts etc...) invest in the funds too. If you pitch it correctly instead of your childs grandparent buying a new toy for your childs birthday - maybe then can throw $20 towards their future!! Its really a win-win.
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Investment Funds and Stocks
Funds that you access through an RESP or Child Trust Account are generally made up ofr mutual funds, shares/stocks, cash and property. Depending on your "risk tolerance" you will choose funds that are more market focused (aggressive) vs. more cash/property for the safer investor.
what you might think, investing in the stock market - FOR THE LONG RUN
- is actually fairly safe! Even with all the economic disruptions we've
seen over the past couple of years, by investing in the "whole of the
market" vs any one specific stock you would be well protected and able
to take advantage of the power of compounding (which I shall talk about
in greater depth at another time) and time itself.
If you invest in shares, for example, the value of investments may vary wildly over two or three years, but over the 18 -20 years or so of the investment, in the vast majority of cases, shares will significantly outperform cash.
Depending on how you actually do decide to allocate your investment most fund companies offer you an aggressive option (mainly stocks/shares) all the way down to a safe option (mainly cash). As you can well imagine the aggressive option has a lot more risk but at the same time the potential of a greater reward and with the time frame you are thinking about, this might actually work in your interest, especially if you look at your distribution every couple of years and reallocate funds based on your current life stage and that of your children.
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Compound Interest and Savings
Regardless of Tax Free Savings or not (most governments have a cap on how much you can invest tax free anyways) you want to have another plan in place for your childs future.
Perhaps you thought that the kids were going to get the house anway's so why bother saving anything else? Well as a child of the "sandwich generation" I can tell you that your kids probably don't want your house anyways - heck you're going to live forever right! - and you probably don't want them living with you either!! So, unless you've got a spare wing on your mansion (!!) they are going to want to have their own property.
Investing in their education is all well and good, but if property prices continue to increase in the future in a similar manner to the last twenty years, you are going to need to help them get on that ladder for at least their first
property. This is where time works in your favor again - trying to
find that 10% deposit chunk all at once isn't easy for anyone, however
finding £50/month is actually not as hard. Take a look at the
calculations to the right for an example of how much £50/month at 1% interest
(which is really low but useful for the sake of this example) for 25
years comes out to.
See what I mean? £17,000 is not a number to be sneezed at and if you can increase your initial investment amount (I used £0.00) and also your monthly investment - perhaps through bonuses or your partner/spouse working or maybe when the kid is old enough, some of his paper money! - this is only going to go up even more. Heck you might even find that you want to write something yourself and make a fortune from the Internet!! While I'm not there I know that there are quite a few people on Hubpages alone that have done this so why not give it a shot.?
If you're in the enviable position of being able to save for the long haul - take advantage of it and enjoy the satisfaction you will get from helping your kids ... after all that's why you had them - isn't it?