6 Ways To Teach Kids Good Money Habits

Teens say parents influence the way they save and spend more than celebrities, TV shows, teachers and even their friends, according to a new poll by the Northwestern Mutual Foundation’s financial literacy Web site, www.themint.org.
So are you leading by example? If you’re like most parents, you haven’t done enough to educate and model to your kids the importance of properly managing money or protecting against the risks of becoming disabled or dying.
Since April was Financial Literacy Month — whether you have young or adult children — spring is a great time to evaluate whether you’ve taken the steps necessary to protect your kids financially, as well as to ensure they’re financially literate so they can make wise decisions about their money.
Here are six good practices you can teach through your example.

1. Teach your kids how to
manage their money.
To help your kids grow into financially responsible adults, talk to them frequently about money management and model good financial behavior, including budgeting, investing and long-term planning. Also, use resources like www.themint.org, which helps kids learn how to manage their money wisely.

2. Create a will.
If you and your spouse die without a will, a state court judge will not only appoint a guardian for your minor children but also decide how to distribute your assets among your heirs in accordance with state law. If you have a large estate and fail to protect it from federal estate taxes, you could end up forfeiting tens or even hundreds of thousands of dollars to the IRS that otherwise could have enriched the lives of your children.

3. Contribute to a tax-sheltered
education savings plan.
College costs continue to rise at a rapid rate, so consider investing programs such as a Coverdell Education Savings Account, Section 529 plans or UGMA and UTMA custodial accounts to fund your children’s education. These programs allow you to save money for your children’s education, while also providing tax benefits.

4. Plan for your retirement.
Set a good example for your children by having a strategy in place for your own financial future. You can fund your retirement through vehicles like a 401(k), Individual Retirement Account (IRA) or deferred annuities. By using a trusteed IRA, you can exercise control over how and when the distributions are made to your kids after your death. For example, you could specify that your beneficiary will receive only the minimum required distribution each year, and distributions in excess of these amounts may only be made to provide for health, education or support.

5. Protect against life’s risks.
One reason to buy life insurance or disability income insurance is to replace the financial support your children would lose if you were to unexpectedly die or become disabled. Since each product helps to replace a portion of your lost earned income, make sure you have adequate coverage in place.

6. Give the gift of financial peace.
If you have adult children, consider giving them the gift of a session or multiple sessions with a financial representative during which they can develop their own financial security plan.

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