This is the first post in a series about Money Matters for All Ages. Sixteen personal finance writers address financial issues from babies to retirement and everything in between. See the end of the article for the entire series.

babies
Photography: Six clones (clowns?) v3 by Spigoo

Our oldest son just turned 2 and our youngest son is now 4 months. Here’s a summary of the financial strategies that I’ve been working on for them.

Get a Social Security Number. Do this right away and it will make all of the other strategies easier.

Open a High Yield Savings Account. Children often receive cash gifts for birthdays, holidays, etc. I’m in the process of setting up an Capital One 360 account for my youngest. I sent a referral from the 2-year-old’s account to the baby, so they will both earn bonus money. Open a savings account in under five minutes with no fees, no minimums and FDIC insurance for yourself or your kids at Capital One 360. Once you have one account open, refer other family members to earn the bonus money! Affinity Bank also offers a 10% savings account up to $500 for children in California.

Organize Savings Bonds. The kids have received numerous savings bonds from family members. I am converting them to electronic version to make it easier to track. Any paper bonds will be placed in our safe deposit box.

Contribute to a 529 Plan. Open a 529 account if you plan on saving money to help pay for college for your children. I calculated how much we want to save for college for our baby and I am adding it to the accounts we have already established. If you haven’t set up an account yet, here’s how.

Help relatives set up 529 plans. If grandparents (aunts, uncles, etc.) are interested in contributing to your kids’ college funds help them set up an account of their own naming your child as the beneficiary. They can then take a state tax deduction if they live in a state that offers it.

Plan your investments. While the kids’ money has a similar asset allocation to our own, I plan to add some child friendly companies that our kids will recognize when they are older.

Claim Your Tax Savings. Claim the child tax credit on your taxes. As long as your baby was born on or before December 31, you are eligible for the entire tax credit.

Change your withholding. If the child tax credit above will result in a $1,000 refund for you, change your W-4 to have less money withheld in your paycheck.

Enroll in dependent care flexible spending. If you plan on using day care or a babysitter you can set aside $5,000 per year to pay for childcare pre-tax. You can change the amount mid-year if your childcare provider changes or the rates change.

Maximize zero tax for children. But beware of the Kiddie tax. Children owe no tax on the first $850 of earnings which creates a great opportunity to maximize income shifting. Earnings between $851 – $1,700 are taxed at the child’s rate and above that it will be taxed at the parent’s tax rate.

Modify wills and trusts. In the event that both my husband and I pass away, we created a will naming our children as beneficiaries. The will creates trust funds for our children that allow them access at age 25. This is an area that I don’t know whole lot about, so I am planning to spend some time in the next few years educating myself on this topic. I’ll be sure to share what I learn as I go.

Update beneficiaries. Change beneficiaries on life insurance policies or any accounts that are not included in the will. We live in a community property state, so my husband and I are listed as primaries on each other’s accounts. The children are listed as secondary beneficiaries. In addition, our children are listed as beneficiaries on other family member’s accounts.

Buy life insurance on yourself. Determine how much you need to support your children in the event that something happens to you or your spouse.

Don’t buy life insurance on your kids. It’s a waste of money. Instead use that money towards one of the previous strategies.

Get a piggy bank. Pick one that is fun to put money in and the pig should fill up quicker!

Update your budget. Diapers, formula and daycare are the big ones for us. Don’t forget other areas of your budget that were impacted by adding a baby to the family.

Sign up for mailing lists. Contact the manufacturers of the products you use most (diapers, formula, baby food) and retail companies (Toys R Us, Gymboree) to get on mailing lists. Coupons will start showing up in your mailbox.

Use cashback programs. Use the cashback programs to help fund the college plans. Upromise and the Sallie Mae Upromise account are both geared towards saving for college.

Action Plan

It’s never too early to start saving and investing for your children. While we are building their accounts we have also established specific purposes for the money; we do not intend for them to be able to spend the money freely at this point.

What are you doing for your children financially?

Here are all the articles in The Money Matters for All Ages series. The entire series is also available to download in a free e-book.






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Comments to Financial Strategies for Infants and Young Children

  1. These tips are fantastic! I can’t wait to see the rest of the series. Definitely worth bookmarking and coming back to.

    Kacie

  2. All I can say is WOW. I needed a little reminder about that kind of stuff. My pregnant belly thanks you!

    Michelle Dawn

  3. Great post – good way to start the series.

    I’m going to read it to my 17 month old. :)

    Mike

    Four Pillars

  4. hey Madison,

    Some great advice. Although I don’t have any kids yet, I hear people in the finance business talking and advising about these kind of things all the time.

    In the future, I think I’ll point them to your site for a complete and thorough run down.

    Especially, like the part about the two year old referring the savings account to the 4 month old, very cute.

    CiaranFromChance

  5. Michelle Dawn & Ciaran: We actually started the 529 plans years before we had kids. I thought it would be much easier to fund them that way. You can start a 529 with yourself as the beneficiary, then change it to your future kids once they are born. Something to keep in mind…

    Madison

  6. @Madison

    That is a great idea about starting the 529 plans early. I never thought to do that. It would help ease the pain if I can start earlier and in small amounts to gradually work the savings into my budget. Thanks!

    Adfecto

  7. Madison! That is very impressive planning :) Thanks for the insight. By the way, I’m due April 3!

    Michelle Dawn

  8. Great information. I bumped into this article while I was searching for ‘ways to introduce kids to banking and savings’. I learnt about the affinity bank, which is really an attractive saving plan offer. However I am searching for a local nearby bank which are accessible to get that ‘first hand banking experience’ for my 4th grader, may be with an ATM card facility too. Any recommendations?
    FYI: On these lines found this site which has lessons for kids on how money and banking works.
    http://www.moneyinstructor.com/banking.asp

    Jithendra B

  9. @ Jithendra: We opened savings accounts for our kids at our local credit union. They gave the kids a piggy bank and they have a free coin counter.

    I would check your local credit unions. In addition, sometimes small mutual banks are very family friendly.

    Madison

  10. This is a really comprehensive list of things to do to properly get your finances in order when you have a child. My wife and I have a 5 year old (and semi-working on another one), and we’re working on getting these things taken care of.

    Know The Ledge

  11. great article and so helpful, time to get savings going for my 3 yr old and 1 1/2 yr old!

    emily


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