Three Essential Financial Considerations for New Parents

“Every home is a university, and the parents are the teachers.”

— Mahatma Gandhi

Whether you are thinking about starting a family, expecting a baby or have just welcomed a newborn, you’re probably extremely busy. But while you’re dreaming up that perfect nursery, don’t forget these three financial considerations as you continue to build your family:

• Considering life insurance
• Saving for college/future education costs
• Establishing a custodial account

Smart financial planning not only protects families against unexpected bumps in the road but also teaches children good financial habits.

Let’s look at each of these considerations in greater detail to see how they can benefit your family.

LIFE INSURANCE

As the name implies, life insurance is intended to protect the living. It’s a way to alleviate a lot of the emergency expenses if something happens to a parent. It can also serve as the foundation for replacing income if one of the parents dies. Both parents need life insurance, even if only one of them is employed. Term life insurance is generally preferable to a whole life plan because it’s more affordable and accounts for the income loss in the untimely death of one parent.

Thinking of the unimaginable can be difficult. But as your family grows, it’s wise to prepare so your family can avoid being stuck with expenses they can’t afford.

SAVING FOR COLLEGE

There are several ways to save for college and other future education costs, but a common way is the 529 Plan. In addition to college expenses, private junior high and high school tuitions can be paid for with money from a 529 plan .

In using a 529 plan, you deposit money into the account and the portfolio grows tax-free. The proceeds of the growth and investment must be used for education purposes.

Go-to sites for more information on the 529 plan are Savingforcollege.com, American Funds and College America.

CUSTODIAL ACCOUNT

Your parents or grandparents might have stuffed money into a savings account at their bank, or maybe even in a mattress or a book, for their descendants to use one day. A custodial account offers more security.

Have your kids received cash or checks from family members for birthdays, holidays, graduations or other celebratory achievements? If so, put that money into a custodial account because there are no restrictions on how to use it. Unlike life insurance and college savings, the money in a custodial account can be put toward anything: housing, vehicles, vacations or any other expense.

A custodial account presents an opportunity to educate your child about investing. When the time is right, you can teach them how to buy stocks with the money from their custodial account.

As children learn how to save, delay gratification and work toward a goal, a custodial account gives them an opportunity to learn about fiscal responsibility. Eventually, the child will wind up with the means to finance something that will serve them for years to come, such as a car or their first apartment. It’s a fantastic lesson about how money can work for you.

To review, there are three ways new parents should approach finances:

1. Life insurance — Obtain term life insurance for both parents, even if only one of them works.
2. Saving for college — Look into options for plans that provide benefits deferral with tax-free growth.
3. Open a custodial account — Your children can have a place to deposit monetary gifts and other earnings while learning to invest and work toward a goal, such as purchasing a vehicle.

Key financial decisions for your family happen at all life stages — whether it’s budgeting to help afford everyday expenses when you have children, seeking tax breaks to help you save for college or planning to financially protect your family if anything happens to you. By working with a CFP® professional, you can take a holistic, personalized approach to bring all the pieces of your financial life together — even while juggling all your parenting duties.