Q: Our daughter was just born. What should we be thinking about financially?
A: Your question around what to think about money-wise shows great parental wisdom. A good start is to envision what you hope she will feel in her own relationship with money in her lifetime. No one wants their kids to be fearful or ill-equipped to handle their money, but we need to envision what we do want for them if we want them to be successful. Picture your daughter responsibly handling money with comfort, contentment, enjoyment and confidence, and take actions to help her make that happen.
If it sounds like a lot for a new baby, it really isn’t. At this point, taking actions toward the vision you have for her is important, but not difficult. The good news is you don’t have to be a financial expert to set your daughter up for success. But I do recommend you spend some time learning about good money habits now. Most of us didn’t learn everything about planning, budgeting, saving, borrowing and investing while growing up. This is a great time to add to your own financial knowledge so you can benefit your family now and pass knowledge on to your daughter over the coming years.
For now, here are a few tips to get you started:
Start Saving Now
If you haven’t already done this, open a savings account for her. Your daughter’s financial wellness will, necessarily, involve a habit of saving. Having a savings account in her own name for longer than she can even remember is a logical start. It normalizes this important step seamlessly for her. Up until she is a little older, the account provides you a place to put her gifts of money. That reminds me, it’s a good time to talk with family and friends about what you are trying to accomplish for her and how a gift of money instead of another toy is a great gift. Some gift-givers may be excited to be part of setting the saving example and welcome the ease. You might also consider a secondary savings account for long-term savings. And when the long-term savings balance grows, open a certificate to earn more interest. If you include her in all of this, even at a young age, and bring her to the credit union, she will get comfortable interacting with her credit union and learning along the way.
Understand Your Education Savings Options
Along with a regular savings account, you could also set up a 529 College Savings Plan now for her future education costs. With such a savings plan, your earnings are free from federal income tax when used for qualified college education expenses. You don’t need a lot of money to start a 529, and there are no federal gift taxes on contributions up to a set amount. You can find 529 plan specifics online, and your tax consultant can give you specific tax implications.
Be a Good Financial Role Model
Ensure you have or build an emergency fund of $1,000 or more. An emergency fund helps you avoid credit card interest expenses when a car repair, water heater or trip to urgent care is needed. Expect unexpected expenses. An emergency fund reduces your financial stress and models good habits for your daughter. When you take these actions now, you’ll create your own savings stories to share to help her own her money someday. Parents’ actions teach louder than our words. Congratulations on your new daughter. She is welcome to become a member of Summit Credit Union, a financial cooperative looking out for her, and her financial well-being. And feel free to check out our free financial learning resources at SummitCreditUnion.com to help kick-start your journey.
