4 Ways to Invest Wisely for Your Children’s Future

It’s never too early to start thinking about your children’s financial future. 

After all, in 2022, median home prices were 42% higher than just three years prior. Experts predict that the financial strain will continue well into the future, with some resources claiming that, by 2030, the price of an average single-family home will be as high as $382,000 (or $2,612,484 in San Francisco and $964,101 in New York). 

With this in mind, it’s only natural that you should start exploring ways to invest for your children. But, as a parent, you want to do this wisely. Yes, you want to guarantee that your little ones will be financially stable once they reach adulthood. But you should also ensure they can direct their acquired funds toward the right things like education, a wedding, or a downpayment for their first home.

So, if you want to make the wisest financial decisions for your kids, here are the things you should pay attention to.

Put Yourself First

This may sound selfish or even cruel, but the reality is that parents must stop putting their children’s needs before their own. Especially when it comes to finances.

This doesn’t mean that you should hoard your financial wealth for yourself. However, your family finances must be healthy and stable before you start putting significant amounts into your children’s savings accounts.

A good rule of thumb is to settle your basic financial needs. Have a family emergency fund that will cover your expenses for 12-24 months. Invest in good medical insurance so your health and financial security don’t become mutually exclusive in case of illness. Do the same with life insurance. And, even though it may sound morose, take out a funeral policy so that your kids are not financially burdened should the worst happen to you.

Once these things are all covered, you can start thinking about building your kids’ wealth.

Start as Early as You Can

One of the most significant advantages your children have going for them is that they’re young. And what this does is that it gives them a lot of time to make the most of compounding interest. 

For example, using a compound interest calculator, you can see how a $10,000 initial investment can turn into more than $14,000 at a 3.5% interest rate over ten years. And that’s without having to do absolutely anything in the meantime. 

With this simple fact in mind, there’s one thing you need to remember: making smart investment choices for your children is to take as little risk as possible and use time to your advantage. The earlier you start investing for them, the bigger their chances of entering adulthood with a secure financial future.

Understand that “Technically” Adult Doesn’t Mean Mature

One of the biggest risks of investing for your children is that they may gain access to the funds before being mature enough to use them in the best way possible. 

For example, setting up a trust fund for your kids may seem straightforward enough (no, you don’t have to be a millionaire to do this). But if you don’t put limits in place as to when your children can withdraw funds, you could easily see all your hard work go toward a fancy car or weekend parties. After all, that’s what most 18-year-olds deem important in life.

With this in mind, you must put limits in place. 

A good rule of thumb is to let your kid access the funds when they turn 25 (other than in case of illness or for education purposes). Moreover, it’s equally important to choose the right trustee (ideally the bank) and to ensure that you name the trust as the beneficiary for your life insurance.

Explore All Your Options

One of the great things about investing for your children is that you have lots of options to choose from.

In addition to UGMA and UTMA accounts (trust funds), you can also put money towards a 529 plan, which is dedicated to funding education. Or, if you are a parent to a teen who runs a side hustle and is making an income, you can open a Roth IRA for them, with a contribution limit currently being $6,000 per year.

Furthermore, it’s also a good idea to explore alternative investment opportunities as a form of diversification. If you decide to take this route, investment gold is a solid choice guaranteed to hold its value. A lot of people are also investing in luxury watches as well.

Finally, if your primary concern is to invest in your child’s future, you could also consider buying property. However, be aware of the fact that this can be complicated — if you go with the option of buying in a trust — or expensive due to capital gains and inheritance taxes.

There you have it, a few tips on how to invest wisely for your children. 

As you can see, there are numerous options you can choose from. But the most important thing to keep in mind is that any decision you make comes with pros and cons. So be sure to start as soon as you can, do your research, and avoid taking any unnecessary risks. That way, your kids will get the most help, and you won’t have to sacrifice your family’s financial stability in the process of building their future.

By Sarah Kaminski

Sarah is a life enjoyer, positivity seeker, and a curiosity enthusiast. She is passionate about an eco-friendly lifestyle and adores her cats. She is an avid reader who loves to travel when time allows.