As a military family, you’ve certainly given your kids opportunities that many non-military families have never experienced — possibly the option to live in different parts of the U.S. and the world, access to healthcare, safe housing and a good education system. (Plus, you’ve got access to a steady job and income!)
As a military family, you encounter special circumstances the way your kids were brought up, and it’s always great to examine how you can help your kids down a path to a bright financial future.
Let’s walk through the best ways for military families to build a better financial future for their kids, both from the standpoint of teaching your kids about investing to how to help yourself build a better future for them.
Tip 1: Teach your kids about investing.
The more your kids know about investing, the more secure their financial future could become. Teach your kids a few basic principles: saving versus spending, investing versus saving, about stocks and bonds and more. Let’s take a look.
- Savings versus spending: You can teach your kids early on about the idea of saving versus spending. Talk to them about the benefits of saving their money and letting it accumulate instead of spending it all at once. The more they save, the more they can spend on something they really want later on. Introduce the idea of a half-and-half piggy bank: One that allows you to put half of your savings in and allocate half for spending. Make sure they have a savings account to empty the money into once they accumulate a certain dollar amount that you agree on, whether it’s $100 or some other amount.
- Investing versus saving: Talk to your kids about how their money can earn even more. Beyond simply saving money, talk to them about how they can earn money from their money. Talk to them about the stock market and how, historically, it has returned 10% over the course of time.
- Risk versus reward: Once you talk about the differences between investing and saving, introduce the concept of risk versus reward. Talk to your kids about how stocks historically give you more of a return than bonds, for example. The more risk you take, the more of a reward you could get. (But make sure they understand that they must not invest more than they’re willing to lose!) Individual stocks can invite high risk, which is why it’s a good idea to diversify those investments. (The lesson on diversification might have to wait, depending on your child’s age.)
- Owning versus consumerism: It’s never too early to teach your kids that they should own rather than being a consumer. For example, let’s say your child really enjoys wearing Under Armour gear. Instead of buying Under Armour products, such as sweatshirts and shoes, talk to your child about owning a piece of the company instead. That can get them really excited about investing.
Tip 2: Talk about buying a home.
Conversations about buying a home might not mean much to a five-year-old, but it may make an impression on high schoolers. Military families often move a lot, and frequent relocations can mean a difficult financial lifestyle for you, particularly if you have bought and sold various properties. Your kids may not realize the financial ramifications of moving all the time, so educate them on what it can mean. Here are some ideas:
- Renting until they know whether they should buy. It’s best to rent until they know they’ll stay at least five years in one place. They may not choose the military once they become adults, but learning about buying and selling a home in advance could help minimize their future financial risk.
- Consider the pros and cons of renting in the first place. Renting doesn’t allow you to own your own home after your loan term expires. Have them determine whether it makes sense for them.
- Encourage them to think about loan terms. You’ll pay more interest on a 15-year loan term compared to a 30-year loan term. For example, let’s say you compare a $240,000 mortgage (30-year loan term at 4%) to a $240,000 mortgage (15-year loan term at 3.5%). Which would cost you more in the long run? You’d pay $100,000 more in interest over the course of the 30-year loan!
Even though your children may not experience a military lifestyle when they become adults, they can learn from your military moves.
Tip 3: Brief them about saving for education.
You want to have a frank conversation with your children about saving for college. If you plan to save, you’ll have a plan in place to do so.
Let your kids know how you feel about saving for college — whether it’s up to them, whether you plan to foot the bill or whether you prefer a joint effort with the perks of the military. It’s a good idea to let your kids know how you plan to pay for college. A combination of lots of different methods often works best. Let’s take a look at several ways you might consider saving or paying for college:
- Scholarships: You can take advantage of numerous scholarships solely for military children in addition to the money you save for college yourself. For example, more than 1,000 colleges currently provide scholarships for students through the VA’s Yellow Ribbon Program.
- GI Bill benefits: You can transfer some GI Bill benefits to your children or spouse, which can allow you to save in the future. The Post-9/11 GI Bill covers the full cost of in-state tuition and fees at public colleges for up to 36 months (four academic years). You can also transfer your GI benefits to your child for private colleges and schools outside the U.S. You can also get a housing stipend and money for books and supplies. If you’d like to transfer your benefits to your children, apply for the transfer as soon as you can, even if your kids won’t attend college for many years.
If you want to set aside additional money, you can consider a few other options, including 529 plans, UGMA/UTMAs, Coverdell ESAs and Roth IRAs. Some of these options don’t require you to save for education. Some serve as a landing place for money you may want to give your child later:
- 529 plans: You can save money in a 529 plan for college. A 529 plan is a tax-advantaged plan which allows you to save money for college. You can also set aside money for K-12 education expenses.
- UGMA/UTMA: If you don’t go the 529 plan route, you could also consider a Uniform Gift to Minors Act (UGMA) or a Uniform Transfer to Minors Act (UTMA), both called custodial accounts. Parents can save money and invest and maintain full control of the money in the account until their children are adults.
- Coverdell ESA: A Coverdell Education Savings Accounts (ESA) is a trust or custodial account designed to help parents pay for college. You can use it to pay for more than just college expenses.
- Roth IRA: Roth IRAs are a type of retirement account in which you pay taxes on money ahead of time, before you put it into your account. You can withdraw all money tax-free (including for education).
Save early and learn about every program that helps your child reach his or her educational goals. Continue to learn more and open an account with UNest.
Tip 4: Talk about the implications of loans.
Have you had difficulty with loans and debt yourself? You might want to talk to your kids in depth about the kinds of debt you’ve experienced and how they might learn from you.
Talk to them about how debt works, and in particular, how interest rate works. You can also walk them through monthly payments and terms and also explain how you have to pay debt back every month.
If you’ve made any mistakes with debt, including credit card debt, explain them to your kids. Show them how only paying the minimum balance can affect them for years to come. You can even involve your kids in your debt payoff strategy, especially if you’re working to pay off high-interest debt. A colorful chart or bar graph can allow them to realize the importance of it and show them how your family can work to better your future.
When they will understand (at a later age) about credit, share with them how important it is to build up excellent credit in order to buy things like homes and cars later on.
Tip 5: Encourage them to cultivate their skillset.
Your kids will have to earn money someday, so why not encourage them now to figure out what type of jobs they might someday enjoy? Kids can learn a lot by developing an entrepreneurial mindset or creating their own businesses. Kids who are old enough might want to get a “real” job. Check out a few ways to encourage your kids to earn extra cash:
- Mowing lawns or shoveling snow in winter
- Housework for elderly or infirm neighbors
- Tutoring fellow students or younger kids
- Pet sitting and/or dog walking
Doing these types of activities can help them identify what they like and don’t like. A love for pet sitting can develop into a desire to become a veterinarian!
Build a Better Future
Your kids might not want to join the military themselves, and that’s okay. Even if they have no desire to join the Army or Navy, you can still give them several military benefits to go to college.
But what about the rest of their financial education? Chances are, they won’t learn about a lot of this “stuff” in school, so it’s up to you to teach them about loans, buying a house, investing, cultivating their skills and more.
You want them to have a bright financial future, and even if that means sharing details about your own personal debt situation later on, they can learn a lot from you. Don’t forget to learn more with UNest.