Financial lessons for parents



Smart Money

When it comes to saving for your child’s college education, it’s never too soon to start. Acting on the advice of their financial planner, the Meritt's of Redhook opened up an account for their daughter, Sophia, as soon as she was born. She’s now 7-years-old. “The sooner you start saving, the more opportunity there is for the savings to grow,” says her dad, Mark. “Early and often are pretty much key principles to being effective at saving.” While it’s especially difficult in this economy to think so far ahead, experts say it’s actually not as daunting a task as you might think.

Make it a budget item

Larry Luxenberg, a partner at Lexington Avenue Capital Management, tells clients to always consider their child’s college fund as part of their overall financial responsibilities. “I always like to look at everything as a whole,” he says. “I don’t like to segregate saving for college from your other financial activities.”

This means adding a line into your monthly budget for college savings and the key word here is budget. Creating a budget that outlines expenses as well as long and short-term goals can help a family find the extra money to put away for the future. “Better budgeting contributed to Americans paying off nearly $1 trillion in debt over the past two years, according to a recent report by the Federal Reserve Bank of New York,” says John F. Rath, senior vice president for TD Bank. There are simple computer programs that can be used to help create a budget.

Where to save

New York’s 529 College Savings Program is a favorite of some money managers. Gary Goldberg, CEO and founder of Gary Goldberg Financial Services recommends the plan because of the tax benefits it offers. Under the program, parents can make tax-deferred contributions. Qualified withdrawals are tax-free. Meritt and his wife opened a 529 account for their daughter at the suggestion of their financial advisor. The couple isn’t currently making regular contributions to the account, but gift money from grandparents and other relatives is being deposited there. “That turned out especially worthwhile for us, since we ended up with less income and haven’t been able to save as much for the last few years, so it’s good that we did some when we could,” says Meritt.

For the price of a pizza

If possible, Goldberg suggests that parents make regular contributions to the plan by arranging for automatic deductions from their pay checks. The minimum contribution to open an account is $25 and the minimum for contributions after that point is $25 and even less at $15 for payroll deduction. Matthew P. McCarthy, of The Vanguard Group, Inc., which manages New York’s 529 Program, points out that the plan is attractive to New Yorkers because it requires such a small initial investment. For married couples in New York filing jointly, contributions of up to $10,000 a year are deductible from their state taxes. Nysaves.org is the plan’s web site.

Experts point out for the price of a pizza and an order of wings, you can make a monthly contribution that will grow over time. Forgo the pizza for a homemade meal and you have enough for a long term investment in your child’s future.

Other options

If you’re not comfortable with a 529, there are plenty of other options. “Even a little bit of savings can go a long way, and starting early is key whether you’re considering a 529, savings account or CD,” Rath says. Some advisors suggest parents try to pay down their mortgage or other debt, so there’ll be more money available when their child is ready for college. By then, the parents might also be in a better financial position to take out a home equity loan.

However you decide to do it, saving for your children's future teaches them a valuable lesson about money. Through your efforts to save, you’ll serve as a role model as they prepare to manage their own money as adults.

4 tips on teaching your preschooler to save

Give an allowance- Financial experts believe the best way to get children started in managing money is to give them an allowance and let them decide how to spend it. They say the best time to start is around the ages of 4. “We’ve started letting our daughter make choices about how she spends some money she gets, so that she can really start to see how she has less left after choosing to buy something,” says Mark Meritt of Redhook.  

Read a story-
Kids love to be read to and there are several books that teach lessons on saving money. For starters, check out A Chair for My Mother by Vera B. Williams and Alexander, Who Used to Be Rich Last Sunday by Judith Viorst.

Acounts for kids- Meritt and his daughter opened a Student Investor Account at Ulster Savings Bank. “They can make deposits at their school if they want,” says Merrit. He says the best part is the bank will add $2 to his child’s account each time she gets at least a “B” average on her report card.

Surf the net-
There are web sites for preschoolers to learn about money. Check out the Credit Union National Association’s “Thrive by Five” program at creditunion.coop/preK. Also, TD Bank has a kids site: tdbank.com/wowzone.  

Joanne E. McFadden is a freelance writer and mother of two, who lives in Charlton, NY.