Many parents have asked their teenage children if they think money grows on trees, which is a common expression that highlights a truth. Young adults often lack financial planning knowledge. Do your children understand how to manage debt, save for college, or plan for retirement? If not, here are some financial tips to pass along.
Firstly, debt should not be treated like a four-letter word. There are times when it makes financial sense to borrow money, such as taking out a home mortgage. However, caution your children about over-extending themselves, particularly with credit card debt.
Secondly, involve your children in planning for their college education at an early age. Let them participate in investment decisions and regularly monitor portfolio progress together. Also, discuss the benefits of tax-advantaged vehicles like 529 plans and Coverdell Education Savings Accounts.
Lastly, while retirement may seem far off for your child, it is crucial to plan ahead. Educate your child about the benefits of tax-sheltered retirement vehicles, such as contributing up to $7,000 to an IRA in 2023. Contributions to a traditional IRA are tax-deductible, but distributions are taxable. In contrast, contributions to a Roth IRA are not deductible, but qualified distributions are tax-free.
These suggestions are just the beginning. However, they can provide a solid foundation for your child’s financial education. Reach out to us with any financial planning questions you have, we’re here to help!