Realize Financial Dreams for Your Children

Physician's Money Digest, November 2006, Volume 13, Issue 11

Most of us have financial dreams for ourchildren. While these dreams vary to somedegree from person to person, most parentswould agree that our dreams are inevitably tiedup with our desire for them to live full and happy lives.

Financial security certainly doesn't guaranteeyou'll never encounter any bumps in the road, butthere's no denying that a life absent of financial stresscertainly improves your chances of living happily. Sowhat can you do to ensure your financial dreamsbecome a reality for your children?

Teach Budgetary Limits

One of the first things you should do to help ensureyour little ones have a secure financial future is toteach them how to live within their means. This is alesson we can begin teaching them at a very early age.

Aside from providing a good role model for yourchildren in the budgeting department, another practiceyou might want to consider is not allowing themto spend money they don't have. For example, if youhave a teenager, you more than likely have beenapproached with this plea: "Mom, can I borrow $25to buy this new DVD? I'll pay you back next weekwhen I get paid for babysitting!" As difficult as itmay be to say no, you are teaching them a valuablelesson by saying, "No, you can buy the DVD nextweek when you get paid."

Once your son or daughter earns income from ajob, they are eligible to open a Roth IRA. This is anamazing investment in their future. If your 15-yearoldcontributes $3000 each year for 5 consecutiveyears into their account (perhaps with your help), itis possible that they could have well over $2 millionby the time they turn 65 due to the power of compounding.This is without ever contributing anotherdime beyond the initial 5-year $15,000 investment.This is something I have done for my children, anddefinitely advise others to do as well.

Invest in Education

Most of us also consider it our responsibility toensure our sons and daughters get the best quality educationpossible. As you know, that's not free. If you aresaving for your child's college education, you shouldbecome acquainted with the Section 529 plans, whichare education savings programs sponsored by moststates under Section 529 of the Internal Revenue Code.Money invested in Section 529 plans grows free offederal income tax until December 31, 2010, and freeof state income tax in certain states also.

While there are many things you can do to placeyour children on the path to financial security, thepoints mentioned above are key. Follow these tipsand you will be well on your way to fulfilling yourfinancial dreams for your children.

Katherine B. Paal, MBA, CFP®, CTFA, is a Certified FinancialPlanner™ practitioner at Heritage Financial Consultants inLutherville, Md, and is an investment advisor representative,registered representative, and licensed insurance broker withLincoln Financial Advisors, a registered investment advisor andbroker/dealer (1300 York Road, Lutherville, Md; 410-339-6675). She welcomesquestions or comments at kpaal@LNC.com.