Your kid needs a trust fund.
Let me explain. To me, the term “trust fund” does not mean millions of dollars in a Swiss bank account (though that would be nice) it means a bit of money that you have, or are going to, set aside for your future heir. Yep, I said “heir”. Your child will carry your name and be your legacy in this life. Of course, you want to make sure that you are providing monetarily, physically, and emotionally for that child.
It goes without saying that handing your kid a stack of savings bonds, the number to an account, or a pile of exquisite jewelry with no financial education to help them manage it makes no sense (read: buy “10 Things College Students Need to Know About Money“), but not helping them by providing a cushion or nest egg doesn’t make too much sense either. Not convinced? Here are my reasons why your child needs a trust fund:
#1 We need money to live in this world. Making sure that you’re child has a bit of a nest egg only makes sense. Think about how your child’s world will be changed when they have the money to travel, start a business, attend college without taking out loans, etc. Most parents want their children to be better off than they were regardless of if the parents were penniless or wealthy.
#2 Having money that your parents saved for you shows that they care about you. This doesn’t mean that if you don’t have a trust fund for your child you don’t care about it them. It does mean that if you take the time to put aside a few dollars for your child’s future you’re child will know that you cared enough to plan for what’s to come. You’re signaling to your child that they are important.
#3 You’re modeling good financial education habits. I am not assuming that you have a spare $10,000 hanging around in your cellar, so you’ll be saving to get put together this trust fund for your child. You’ll be opening an account with a good interest rate at a stable financial institution (credit union, Treasury, or investment firm) and contributing a small amount regularly (start putting away $50 a month. Assuming a 4% interest rate over 18 years, you’re kid could have $15k and wouldn’t that have been nice when you were their age!) to grow this nest egg. Let your child know what you’re doing. Make them aware of why you’re doing it as well as how you’re doing it.
If you want your kids to have good financial education skills you have to start teaching them, and showing them, when they are young.
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