We take a look at the financial ‘what ifs’ that all parents worry about and suggest some practical steps you can take to ensure that your children are protected financially if disaster strikes.
Financial worries for parents
If you’re a parent, worry is par for the course. In fact, according to one survey, parents spend an incredible 37 hours a week, or over five hours a day, worrying about their children.
There’s certainly a lot to worry about. Along with the age-old concerns related to health, safety, bullying, happiness, sleep and schooling, we can add financial worries such as crippling student debt, the astronomical cost of housing, job insecurity and numerous other challenges our young people will have to overcome to gain long term financial security.
All of these are legitimate concerns however, worrying doesn’t actually help. Consider this pertinent quote from American humourist, Erma Bombeck:
‘Worry is like a rocking chair: it gives you something to do but never gets you anywhere.’
So true! Given the futility of worrying, why not divert your energy into finding solutions where they can be found? Financial planning can’t eliminate problems altogether, but it can ensure that your loved ones are protected against some of the most challenging situations they could face.
Three ways to safeguard your child’s financial future in ‘what if’ scenarios
1. What if you get seriously ill?
In 2015, the US Department of Agriculture estimated the cost of raising a child at $233,610. With inflation soaring that figure will undoubtedly be higher in 2022.
That’s a lot of money for two working parents but what if a family breadwinner is no longer able to work? The fact is that accidents happen to the most prudent of people and serious illness can strike at any age. Did you know, for example, that stroke rates are actually on the rise in younger adults in the US?
Critical illness cover is designed to protect families against financial threats such as these. Policyholders receive a lump sum if they are diagnosed with an illness listed on the policy. This maintains the financial security of families during tough times, enabling them to continue covering their regular outgoings. Life can continue as normal without having to make major financial sacrifices like moving house or changing schools.
If you don’t have critical illness cover, it is definitely worth considering. If you do, ensure that you regularly review your requirements and adjust them to meet increased financial responsibilities.
2. What if you die?
Staring mortality in the face is not a pleasant thing to do but doing so enables you to protect your family from severe financial consequences should disaster strike unexpectedly.
There are a few considerations here:
a. Life insurance ensures that your family do not suffer financially if you die. A professional financial adviser can help assess your needs and make sure that you have taken all potential future expenditure into consideration. Life insurance is an essential pillar of your financial planning so if you don’t have any in place, make it a priority.
b. Guardianship is another important issue if you have children. Nominating guardians of your choice is another task to prioritise to avoid any misunderstanding or unnecessary legal processes in the event that your offspring are orphaned.
c. Estate planning is also key. Discuss the best way to protect your assets with a financial planner. They can suggest legal ways to minimise any tax liability on your estate and maximise the amount your loved ones will receive. Options include regular gifting up to specified annual limits to pass some of your legacy to your loved ones during your lifetime and setting up a trust to protect assets and reduce the tax burden for your beneficiaries. In addition, certain stock and property investments could be exonerated from IHT.
3. What if they want a university education?
Universities across the western world are far from cheap. The cost of a UK education, for example, has tripled in ten years. Nevertheless, a university education is still considered by many to be essential for their children to attain long-term financial stability. Not to mention the numerous other benefits of having a degree.
The answer here is regular saving. It is never too soon to start building capital to fund your child’s future education. From little acorns grow great oaks and that is as true for your savings as it is for your children! While they are acquiring all the knowledge and learning required to secure them that university place, your savings will be acquiring interest and compound interest to give them the luxury of choice when the time comes for them to choose where they want to study and for how long.
Infinity has a great deal of expertise in education fee planning and can help you deal with this ‘what if’. Why not contact us for a chat?
Worrying is an inevitable part of parenting and the desire to protect our children is primordial. While it is impossible to guard against every problem and difficulty that will be thrown their way, planning for these three ‘what ifs’ will at least ensure that their financial wellbeing is taken care of. A financial plan that incorporates the elements outlined above will give you peace of mind.
If you’d like to discuss life insurance, critical illness cover, estate planning or a regular savings plan with one of our professional financial advisers, please do get in touch.
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