Becoming a parent is one of the most exciting and intimidating experiences of a person’s life. Being surrounded by so many changes can cause people to seriously consider their long-term future and where it may be heading. Setting up their child for future success is the goal of any parent and this is often related to financial stability for them. A classic dilemma advisors will face is how to advise new parents during this stressful period and what accounts can be suggested for saving in the future.
The list may be very long and hard to take for a lot of people, but it is important to understand that having a child costs a lot of money and it must be budgeted for. As a financial advisor, these costs can be presented in a very manageable way for your client, the key is to not make anything too overwhelming. Asking the right questions such as, “what type of opportunities are you needing to provide for your child?” Schooling costs is a good place to start. Are they going to be attending a private school? Is a university degree needing to be considered? Other costs are important to parents as well, like wanting to buy their kid a car as soon as they are of age. These must all be factored in. As soon as parents can start imagining what their son or daughter’s live’s will begin looking like, the costs can be broken down accordingly.
A common move that many parents are looking into is starting a bank account with a child’s name attached to it even when they are an infant. Children are unable to sign anything until they turn 18 but a parent can contribute to the account with intentions of signing it over when they are of age. There are plenty of high interest savings accounts available that are being utilized, ranging from 1.1%-1.4% APY. One to take note of is the Marcus by Goldman Sachs account, which offers high-yield interest savings with a rate of 1.6% and is four times the national average according to the company. Providing as many options as possible for the client is a good strategy so that the family can go away and think about the best solution. Savings accounts are a real relief for clients when you can show how much they can save for their child over a period of time.
For most parents, there won’t be a large lump sum of money being funnelled into a savings plan, it will most likely be coming from smaller, regular contributions. Something that can be emphasized when parents are your clientele is that these contributions must be stuck to as religiously as possible. With 57% of Americans claiming that they have less than $1000 in their savings accounts, it shows that the ‘saving culture’ is dying. An effective way to continue to save is by having an automatic deposit taken out for each paycheck. This can be a hard pill to swallow for parents but if they are to achieve their goals, contribution plans could be the key aspect to that.
Saving for someone else's life can be an overwhelming responsibility for many people. However, with the right help and direction, your advising practice can guide parents to achieving the savings requirements they need. Savings accounts, contribution plans and a reasonable amount of planning are important steps for any parent.