Rolling with the unexpected is a way of life for most parents. However, there are some unexpected situations where planning is key and could be vital for your family.
Do you know if your children will be financially secure if something should suddenly change – whether it’s your health, your relationship or another aspect of their lifestyle?
BT spoke to Daniella Elchaar, Senior Adviser for BT Advice; Peter Bobbin, Principal at Argyle Partners and Charlene O’Doherty, Advanced Financial Planner for BT Advice on their top three tips for protecting your children financially.
1. Estate planning
Planning your estate can be a crucial way of protecting your children in the event of your death, including where other caregivers are also unable to step in.
“Ask yourself, what do I want to see happen?” says Peter.
You should consider who would take care of your children (if still minors) and financial support, for example, setting up a testamentary trust that allows money to be spent on their needs. As part of this, you should make sure to update the beneficiaries on your superannuation.
Keeping your will up-to-date as your life changes is important. Daniella recounts the story of a client in a second relationship who passed away without an updated will. As a result, her second husband inherited all her assets. Unfortunately, he also passed away and his children inherited the combined assets, with nothing left to her children.
Similarly, Peter had a client who inherited all of her ex-husband’s assets because he hadn’t updated his will after they had divorced.
While many often view insurance as being a support for themselves in the case of an emergency, it can also be part of your protection plan for dependents or children in an emergency.
Say you were suddenly unable to work due to severe illness and disability, but still needed to financially support your children, insurance might be part of your financial buffer for your own needs and that of your children.
One of Charlene’s clients had recently been through cancer and had a young daughter to support. She had an insurance policy which she’d never claimed on and decided to maintain the cover just in case of a future need to help her and her daughter.
It is also important to ensure you personally own any policies covering you in order for you to actually benefit. Charlene’s client mentioned earlier was also going through a divorce, and the policy covering her was actually owned by her ex-husband. To avoid having to take out a new policy, the client needed to request her ex-husband sign over the policy to her, a situation which can be complicated depending on how amicable a separation is.
There are a range of different insurance types to consider, which can be held within your superannuation or outside of it, depending on your needs and situation.
3. Teach your children how to manage money
A simple, but often missed way to protect your children financially is to teach them how to manage their money and that what they do with their money is important. After all, if your children know the principles of money management, they are better able to avoid the situations as adults where they can get into financial strait – or to find approaches to manage getting themselves out of debt.
“Delayed gratification is a key lesson, if you don’t have the money for something, you can’t afford it,” says Daniella. By encouraging children to save for the items they really want, they not only feel that sense of achievement when they finally can buy it but it sets them up for lifelong patterns.
Where children put their money too can be part of life lessons. For example, putting savings in a bank account, which earns interest, can show children the power of compound interest over time.
Children absorb their parents’ behaviour too – so practising a careful approach to money in front of your children is all part of teaching them how to financially protect themselves as they get older.
You might not be able to protect your children from all of life’s punches, but keeping up-to-date financial plans and teaching them how to manage money can go a long way to helping them if something should happen to you, or in preparing them for adult life.
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