We all want to help our children and maybe we have the money ‘spare,’ to do it. But have you thought about your own future needs - can you know exactly what you’ll need in the future? And then if you do help them with a lump sum, will they use it wisely or will they treat it like a little lotto win? Passing some of your financial ‘strength’ onto the next generation makes sense AND it needs to be considered carefully.
One way to help might be by putting money towards your childrens’ retirement. You could start the payments, which they could then take over when they become more financially secure. People who leave pension payments until their 50’s or 60’s have to save a huge amount of money each year to make any significant difference to their retirement income. But for someone who starts their pension planning in their 20’s, a small annual saving will make a considerable difference to their financial pension.
Another option is to use a little bit of your spare money now to pay for life insurance for your children - remembering that if one of your children died, that as well as supporting your grandchildren emotionally, you would want to provide financial support. So starting up some life insurance for your children is like a once removed policy for yourself.
Obviously these options only work when there is some money to spare, if family ties are strong and yours is the kind of family happy to talk about money. If you’re fortunate enough to be in this position then these options may be one way of sharing your good fortune. It’s worth thinking about.
If you have any questions about how all this might apply to your own situation then please give me a ring – it’s free and there are no obligations or catches. Call 0800 908 907
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Names and identifying details have been changed to protect privacy.
Mr & Mrs Clark had been clients of mine for many years, they’d retired and were living comfortably on the pensions & investments I’d arranged for them years earlier. After we’d finished one of our regular reviews they asked me to speak to their son Neil & his wife about them taking out insurance for their young family. Neil & Anita knew they needed insurance but were nervous about their finances and about Neil’s job so they had been putting off any decision on insurance commitments.
My relationship with the family was pretty strong so I had a word with his parents a couple of days later. They could have afforded to give Neil & Anita some capital but were worried that it might not be ‘used properly’ so I suggested they offer to pay the insurance premiums for Neil & Anita instead. The reasoning being that, if anything untoward happened and either Neil or Anita were on their own and needing support – financial or otherwise, the Clark’s would be providing and helping the children anyway.
So it made sense for them to pay their son’s insurance for a few years until he could afford to take over the payments himself. Last time I spoke to Mr & Mrs Clark they were talking about doing some regular investments for Neil in order to build up a retirement fund for him and they were planning to use a family trust to ensure that the money was used for just that purpose.
Because paying a regular premium on your childrens’ behalf is cheaper than it would be for you to pay some of their bills if anything untoward were to happen. And you’re giving them money that can only be used wisely
It’s about creating a safety net (made of money) to catch your loved ones - just in case.
When insurance and savings are begun when the benefactor is younger then the time frame is larger and so regular payments are a much smaller part of a person’s income, which makes it more affordable. Also, as parents approach retirement, they usually have a reasonable amount of disposable income.
For this one I can’t see any. Tell your children that you’d like to give them money for something useful like insurance (life, health, etc.) or saving towards their pensions. They’ll either say “Thanks” or “No thanks”.