Preparing your children for life without you

The difference between financial and personal disaster for children who lose one or both parents before adulthood is preparation – in the form of effective estate planning and the training of children in personal financial management.

A will is a very effective way for people to distribute their assets and provide for others. Make a will and keep it in a secure location, with at least one person knowing where it is. This should ensure that your assets are distributed timely and in line with your wishes after your death. Naming a reliable executor to be your personal representative after your passing is key to the effective management of your estate.

You also have the option of creating a trust for your children, although it tends to be costly. It is an effective tool for providing for the financial needs of children and for protecting their interests. A reliable trustee is essential and can be effective in situations in which a parent has more than one set of children.

Life insurance is very important for people who have dependents, especially children. It is a means of replacing the income of a person who dies, thereby enabling beneficiaries to stand a reasonable chance of realising their goals and meeting their living expenses.

Consider an insurance policy with your children as the beneficiaries, just “in case anything happens” to you. That would provide an immediate payout so that life can continue with some level of normality. If your children are minors, you would need to name a trustee to receive and manage the funds if the need arises to make a claim.

Although term insurance provides only coverage and may be seen as temporary insurance, it is relatively cheap and provides a means of replacing at least some of the income of a deceased breadwinner. Consider it as an option if it is all you can afford initially.

You can create an investment portfolio for your children with an investment strategy that addresses their needs. This may need to be tweaked as the situation requires. It is important to preserve capital and generate a regular and reliable stream of income. But inflation is a very present reality, so it should have scope for the protection of the purchasing power of the assets.

Before you open an investment account for your children who are minors, you should apply for a Taxpayer Registration Number, or TRN, for each child. Financial institutions will generally allow you to open a joint account with each, but will require the child’s TRN and proof of identity.

Parents who contribute to the National Insurance Scheme (NIS) can create an opportunity for their children to derive a benefit. God forbid, but in the event of both parents dying, their children become eligible for the orphan benefit. There is also the special child’s benefit, which is paid up to the child’s 18th birthday, and applies when the mother – the primary caregiver – has died and the father is out of the child’s life completely. In such a case, the benefit would be on the basis of the mother’s contributions. As an NIS contributor, you may help your child to get a benefit.

Training your children to become good money managers is a great gift to them. Begin to train them from they are young. The habits they develop will help them to become responsible managers of their finances when they become independent of their parents.

Introduce them to family financial matters early. Introduce concepts that they are able to understand at their level of development. Let them understand why the family has to plan how it spends what it earns.

It is important to have family meetings regardless of the size or make-up of your family. When family members know what is happening in the family, they can make surprising and valuable contributions, and become more willing to support the goals and plans of the family.

Take the children shopping with you. Make time to explain why particular purchases are made and why you make a shopping list. Let them understand why you have opted not to make certain purchases. Help them understand the value of delayed gratification.

Encourage them to save, at home first, but later at school or in a financial institution. If they save at home, you may add an agreed sum at predetermined intervals to teach them about interest. Help them understand the value of earning income.

Teach your children to develop a culture of giving. Help them identify what they will give to and how much they will give. Let them know the importance of keeping within the limits they have set.

Show them what a pay cheque looks like. Help them understand that not all that is earned comes to the family as there are deductions that the Government requires as well as deductions for health insurance and pension, for example, to secure the welfare of the family in cases where this is done.

Providing financial resources from any combination from the following – a will, a trust, life insurance, an investment portfolio, and savings, as well as the training to manage money – is the best way to put children on a good financial footing in the event of their parents dying before they have reached the stage of financial independence.

Oran A. Hall, author of Understanding Investments and principal author of The Handbook of Personal Financial Planning, offers personal financial planning advice and counsel. Email: finviser.jm@gmail.com.