[Posted Dec. 19, 2007]

Parents Are
Financial Planners
For Their Children

Lenard Myers, II
Financial Columnist

     Well, since last month’s article, I am pleased to share with you that my wife and I had our first child.  Our baby girl “Vivian” is quite a striking work of God’s beauty and as I looked into her eyes one morning, I began to think about what the future holds for her.   
      As her father and “de facto” financial planner, there is more required of me than diaper duty and sleepless nighttime feedings.  I must now nurture the financial aspects of her life in addition to her spiritual well-being and social graces.  Now that I have joined the noble ranks of parenthood, I realize that we are indeed financial planners for our children.  So, I want to share with you a few pointers whether you are a new parent, a veteran, or a parent-to-be because our children are depending on us to help them achieve some level of financial security.   
I know you’re thinking college and that’s of course a given but what about after college.  Wouldn’t it be great to set up your son or daughter so that they have a sizable house down payment waiting on them upon graduation? Imagine not having to waste years renting and saving up for a house “one day?”  Wouldn’t also be great for your children to have retirement nest eggs in place before they even work the first day in their career? Alright, let’s see how we can be effective financial planners for our children. 
$150 a month.  That’s $75 a pay period or $5 a day.  Let’s see what I could do for Baby Vivian.  The first thing that came to mind was an Indexed Universal Life Insurance Policy.  An IUL is simply a universal life insurance policy that earns interest based mostly on the performance of Wall Street.  With quality IULs, the money invested cannot be lost due to stock market downturns or inflation.  529 higher education savings plans that rely on market performance put your money at risk if the market declines.  Also 529’s limit you to certain expenses where the money accumulated in the IUL can be used for a variety of reasons like the ones I shared earlier and can be extracted tax-free.  
      I would need to make sure I already have at least $1 million in life insurance between my wife and myself.  There could also be some issues regarding when she could gain access to the policy for herself, but since we’re primarily discussing major life events, we will forgo these details. 
If I opened a $500,000 investment-grade indexed universal life insurance policy, I would have $150 automatically taken out of my bank account every month.  With this automatic wealth-building approach, we can begin to look into the future and anticipate the following for little Vivian.   
      When she is ready to drive, she is projected to have about $33,000 in her policy which isn’t bad.  At 21, we’re looking at almost $60,000, and now she is ready to begin her career and take over making the $150 a month payments herself. Fast-forward to age 30 and she cracks six figures.  Now, here’s where things begin to take off.  At age 50, she should have about $750,000 free and clear and just ten years later at age 60, this figure doubles to just over $1.5 million. 
      Vivian, now thinking it may be a good time to retire, begins to live on $121,000 a year tax-free for the rest of her natural life.  This is in addition to any 401(k) or IRA she may have had in place and she is living quite comfortably all because her parental financial planners thought it prudent to nurture her financial well-being in additional to the other vital aspects of her life.  She is so blessed to have such parents, but I digress! 
     Seriously, now that I shared with you just how powerful of a financial impact you can have on your children 20, 30, or 60 years down the road, you may be thinking of how you can best make this happen.  Well I am glad you asked because I have five suggestions.   
      The first and most important tip is “don’t rob your children.”  As their financial planners, you have a duty to your “clients” not to divert their funds to other purposes.  You may think, “the car needs to be fixed, I’ll just take $500 this one time.”  Perhaps a loved one is ill and they have some serious medical bills.  I remember an episode of “Good Times” when Thelma was about to go to college but the college fund James started when she was born only contained about $10 because he made withdrawals in the many times when things weren’t so good. 

     When you divert your children’s money, you are relegating them to the same life of fiscal insecurity that prevents that relative of yours from paying their medical bills or you fixing your car.  I urge you in the strongest terms to see this totally as a non-option.  Make sure your children have more than good times; insure that they have a good life by protecting their financial seeds. The seeds you plant and protect will grow and blossom into reliable wealth for your children. 

     Second, automate your financial plan.  This is truly as simple as it sounds and helps you to maintain your discipline in making regular contributions to the plans you have set up for each of your children.  Select the option of having contributions withdrawn automatically out of your bank account the day after your direct-deposit paycheck hits.  This will ensure that the contribution comes out of your account before unexpected expenses crop up and consume your money faster than you may have anticipated. 
Otherwise, once you miss a month, it will become easier to skip regular contributions.  In doing so, you may not be able to help like you dreamed so many years before.  So, this pointer is also one not to ignore. 
      Third, lay-off the bling.  This may be hard to hear but your child, especially if they are younger than junior high school, doesn’t necessarily have to wear premium name-brand clothing.  Instead of a $150 pair of shoes as birthday gift, what if you bought a pair on sale for $50 and put the rest toward the plan.  If your children are young and grow faster than you can clothe them, then why not go to a thrift store near a nice neighborhood to buy clothing and use the savings toward their plan.  Instead of buying the latest electronic game system, what if you just bought your children the games and they can play them on their friend’s system.  Taking the savings from here and there and adding it to your regular contributions and you turbo-charge the compounding interest on your child’s assets. 
      Fourth, this is a family affair.  Your extended family can also help raise your child to the next level financially.  Instead of giving toys and other things that just break or wear out over time, what if they gave cash gifts to use toward the children’s plans or a combination of gifts and money?  $50 for Easter or $100 for a birthday, these amounts add up over the years.  If family members give cash gifts, then the child could be shown how to spend half and put the rest in their own plan.  This leads me to my last tip.   
      Fifth, it’s your children’s futures. Cultivate their financial discipline as young as possible.  This may sound a bit foreign to you because we as Americans typically save and invest about two percent of our discretionary income.  Contrast this figure with the Chinese who squirrel away about 35%.  Both percentages reflect which mindsets that have emerged from their respective cultures.  Imagine a child raised to invest in his/her own future since he/she could talk and the power of such a long-established mindset.   
      Encourage your children to think about starting a business next summer and become their first investor by providing some startup money.  If there are any profits, show them how to share them with you, the investor, and put some away for their futures.  Such experiences early on will help them to realize that they can also take an entrepreneurial approach to their futures and supplement their income in additional to a 9-5 job.  If anything ever happened to their job, they could rely upon their side business and perhaps expand it into a fulltime gig.
     These are just a few ideas, but the point is to cultivate a mindset of future preparation for lasting wealth before self-gratifying consumerism.  That way, the hundreds-of-thousands or perhaps millions-of-dollars you have grown for them will continue to build wealth for your children’s families and generations to come. 
      Well, it has been my honor to share with you my “two cents” on financial matters over the past year.  I would love to continue but now that I’m a daddy, I am going to concentrate my efforts on parenting (at least until I get a better hang of it).  Remember, quick money is only a profitless distraction.  So, grow your money the right way, one dollar at a time until your money can begin to work effectively for you.  It has been a pleasure and I thank the publisher, Brenda Andrews, for the opportunity she graciously afforded me. 
Merry Christmas and I declare a prosperous new year over you and your family!
             

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