Sometimes it can feel like you’re throwing your money down a black hole that happens to be wearing a onesie. Clothes they quickly grow out of, astronomical child care and food to feed a teenager–hey, where did my money go?
But there are ways in which you can invest your money in your child and see a big return, and we’re not just talking about buying savings bonds.
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While many of the things you want for your children may seem out of reach now (a $200,000 college education? Trusting them to handle a credit card all by themselves? Getting them to finish their peas?), by making little investments now, you can get them where you want them to be, even while improving your own finances.
1. $20 for Cleaning Out the Garage
Studies show that giving an allowance can actually lead to lower financial literacy, lower levels of motivation and aversion to work. We’ve come down on both sides of the issue of paying for chores, but most experts agree that paying children extra cash for tasks that go above and beyond their normal duties will help both you and them reap benefits later. Them, because they’ll have solid finances. You, because you won’t need to bail them out or support them.
Get started by using this website for assigning chores and rewards.
2. $12-$60 for a Year of Girl or Boy Scouts
We like group activities because they encourage cooperation, learning and healthy habits. Girl Scouts is one of–if not the–most affordable activities available for young girls. But there’s another reason we love a membership: Girl Scout members now learn financial literacy skills as well. Badges added to the roster in the latest overhaul include Money Counts, Money Manager, Philanthropist, Business Owner, Savvy Shopper, Budgeting, Comparison Shopping and Financing My Dreams. Boy Scouts have similar merit badges in Entrepreneurship, American Business and Personal Management, which require them to save up for, budget and plan for a major purchase.
How much you pay for your own kid’s involvement with the Scouts will vary depending on where you live, but even at its highest price, it’s not too bad.
3. A $200 Deposit in a 529 Plan
A 529 plan lets you save tax-free for your child’s college education. Because it’s an investment account, money you deposit will grow at about 7% a year over the years you’ll be saving. That means if you deposit just $200 when your child is 5 years old, by the time she heads to college, your money will have more than doubled, and she’ll have about $500 to pick up everything she needs. Think about what depositing $200 a month will yield over 18 years!
You might be wondering if it’s even worth saving for college at all, when it’s so darn expensive. Well, a college education is still the fastest ticket to the American Dream … unless your child is burdened with students loans. According to FinAid.org, gift aid from the government, colleges and universities and private scholarships pays for only about a third of total college costs. And taking out loans to cover the rest is much more expensive than saving ahead of time. FinAid.org estimates that if, in the years before your child enrolls in college, you save $200 a month for ten years at 7% interest, your child would then have almost $35,000 to use. But if you borrow the same amount at 6.8% interest and pay it back over ten years, you’ll be making payments of over $400 a month. $400 versus $200 a month. Which would you choose?
4. $100 to Make Their First Financial Mistake
We all make financial mistakes. But the hope is that we can avoid some of the bigger ones by learning from small ones. Keep this in mind the first time your kid blows $100 on a ridiculous purchase or silly money mistake. $100 might seem like a lot, and it is. But as our Certified Financial Planner (CFP®) Sophia Bera points out, better $100 now than $1,000 or $10,000 later!
Take full advantage of this moment when it happens by sitting down with your child and asking him questions about his mistake. Was the purchase worth it? How could he have avoided this situation? What will he do next time to prepare for contingencies? Consider that $100 you just spent as education for your child. Just resist the urge to jump in and fix things–then the lesson will be lost.
5. 13 Cents More per Pound for Organic Produce
A recent study found that 38% of conventional produce has traces of pesticides, while just 7% of organic produce does. This is a big deal, as a 2010 study found a close correlation between the amount of a certain pesticides present in children’s urine and the severity of their ADHD. And prenatal exposure to pesticides has been shown to harm children’s brain formation and lead to lower I.Q.s. This, of course, is bad news for your child’s future professional and financial success.
If buying all organic seems like a tall order for your grocery budget, you can pick and choose produce–some types are more likely than others to have pesticide residue. Find our list here.
6. $100 in Their First Savings Account
According to research from the Center for Social Development at Washington University, kids whose parents opened a savings account in their name were up to six times more likely to go to college than those who had no savings account. And it didn’t even matter how much was in the account–just that they had it. And of course, having a savings account teaches kids basic banking skills, especially if you get them in the habit of reviewing statements, looking for any unnecessary fees and depositing money on a regular basis.
Learn how to best take advantage of this teaching tool with our guide to building good saving habits.
7. $350 a Year for Life Insurance
Making sure you and your spouse have life insurance will not only provide for your children if something happens to you while they are still young, it also functions as an inheritance and a way to pay off any debts even if you do live a long life. And it’s not just for families where one spouse is working and the other is at home–even if both parents are working, losing a chunk of income could be devastating. Learn more ways in which life insurance could save your family, plus how to get started choosing a policy.
But, please note: Getting life insurance coverage for your children is an unnecessary expense.
8. 10% of Your Salary in Your Own Retirement Fund
How is this an investment in your child? Let us explain: You might be tempted to put off saving for retirement or maxing out your funds because you want to provide your child with everything she needs to succeed and more. However, if you get to retirement and you don’t have enough saved up, guess who is going to feel pressure to pick up the slack? That’s right, your kids. That’s why, though we think saving for college is a great idea, you shouldn’t forgo saving for your retirement in order to make that happen.
Find all the resources you need to save for retirement here.
Tell us–what small investments have you made that you feel really paid off for your kids in the long run?