Many investors, in hindsight, wish they started saving earlier to give their children or grandchildren a head start in life. For some, this means saving for university. For others, it may be to help buy a home or provide overall financial security. Once you decide to start saving to support a child’s future endeavors, there are a few questions to answer that will determine the best route. Saving for the future need not be at the expense of enjoying life in the present. Your investment advisor will work with you to help you calculate what your needs will be, and actions you can take now to meet those needs. Thanks to the power of compounding, the earlier you start, the less you’ll need to set aside on a regular basis.
What do you hope to accomplish with these savings? Do you want to fund a post-secondary education? Do you want to save for a down payment on a home? Do you want to provide a child with a financial cushion or rainy-day fund? Maybe your goal is to leave a lasting legacy, or even to teach the child about saving and investing. By defining your goals, your advisor can recommend the best way to go about meeting them.
Once you decide to provide for a child and clarify your objectives, the next step is to ask yourself how committed you are to how the money is used. For example, maybe you decide to fund a child’s education. How would you feel if they decided not to go to university and wanted to use these funds to travel or start a business?
How much access do you want the beneficiary to have to these assets? Do you want to maintain control over how these funds are invested? You may wish to stipulate how or when these funds may be spent.
Do your objectives warrant the expense and time of setting up a trust fund for a child or grandchild? People often use trusts when dealing with larger amounts of money, or if there is a reason to want control over how and when funds are used. Trusts not only offer the ability to direct the dispersal of funds; they can also protect the assets from legal challenges like divorce and creditors.
Often, the best thing you can give your children and grandchildren is knowledge. Helping a child to open a savings account of their own and teaching them to save for things they want provides valuable lessons. Teaching them good financial habits cay pay the largest dividends in their future.