The other day I met a young couple who had just had their first child. The couple had been married for about four years and had never done anything from a financial planning standpoint and realized with the birth of their child it was time to get serious. They asked me what, as new parents, they should be doing from a financial standpoint. I thought I would share with you some of my thoughts.
The first thing I told them was that they need a will. As I told them, the most important thing is not who gets their money but rather, who’s going to raise their child if something happens to them. As a parent you have a responsibility to your child even when you are no longer here. It is important that parents name who they want as guardians for their children so that in the unlikely event that something happens, there are no family disputes and fights. As I explained to the couple, in their situation I would recommend the Michigan Statutory Will, which is a free fill-in-the-blank will. The will is very easy to complete and most importantly, it allows you to name a guardian for your children. The Michigan Statutory Will is available in many places, including my website.
Next, I told the young couple that as far as I was concerned when you have a newborn, from day one you should start thinking about saving for their college education. We all know how expensive college is and the sooner young parents start saving, the easier things will be. In addition, I mentioned what a blessing it would be if when their child graduated from college he was not burdened with excessive debt. What I recommended to them is that they consider opening accounts with the Michigan Education Savings Plan (MESP; www.misaves.com). The MESP is a great way to save for college as there are very low minimums to start the plan and the plan is very flexible in the fact that you can basically use it for any public or private institution in the country. I also told them that as opposed to grandparents and relatives buying toys and clothes for the child, a contribution to their MESP account may be more appropriate. After all, the child will be bored with the toys in about 10 minutes while their education will last them their entire lives.
The one question I asked the young couple was if something happened to either one of them would the other one have the financial resources to maintain the family? Their answer was no and therefore, I recommended life insurance. What I told them regarding life insurance is that they should consider term insurance. Term insurance is the most affordable type of insurance and it is the type of insurance I generally recommend, particularly to young couples. Of course I told them it pays to shop around for term insurance because the market is very competitive.
I don’t have to tell parents how much responsibility there is when you bring a newborn into this world. However, it’s not unusual for parents to delay some of the financial and legal issues surrounding their child. However, these items are important and they can make a substantial difference in your child’s quality of life; and after all, isn’t that what it’s about? Therefore, if you have a newborn, it is important that you don’t delay and find the time to deal with some of these legal and financial issues.
If you would like Rick to respond to your questions, please email him at Rick@bloomassetmanagement.com.