With the introduction of Name, Image, and Likeness (NIL) opportunities, student-athletes can now profit from their personal brand while still in college. This shift has opened doors to substantial earnings through endorsements, social media deals, merchandise sales, and more. However, with these new opportunities comes a responsibility that many young athletes are unprepared for: financial management.
As a parent, helping your child manage their NIL earnings is crucial to ensuring their financial success, protecting their long-term future, and teaching them valuable money management skills. Here’s a guide on how to support your student-athlete in navigating and maximizing the potential of their NIL income.
1. Educate Your Athlete About NIL and Its Implications
The first step in managing NIL earnings is making sure your child fully understands what NIL is and how it works. Many student-athletes may be thrilled about the chance to earn money, but they may not fully grasp the financial implications or legal responsibilities that come with it.
Key Points to Cover:
- What NIL Means: Help your child understand that they can earn money from sponsorships, social media promotions, brand collaborations, and merchandise sales.
- Taxes: Explain that NIL income is taxable, and they will need to set aside money for taxes and file tax returns just like any self-employed individual.
- Legal Obligations: Make sure they know that NIL deals must align with NCAA and school-specific regulations to maintain eligibility.
- Financial Accountability: Teach them that they’re now responsible for managing their earnings, which includes setting aside money for taxes, creating a budget, and thinking about their long-term financial future.
đź’ˇ Pro Tip: It may be helpful to sit down with a financial advisor or tax professional who specializes in NIL to ensure your child understands the basics of taxes and legal issues.
2. Set Up a Separate Bank Account
To avoid the temptation of spending earnings quickly, it’s essential to set up a separate bank account dedicated to their NIL earnings. This makes it easier to track income, separate business-related expenses, and stay organized come tax time.
How a Separate Bank Account Helps:
- Track Earnings: With a separate account, you can clearly see how much your child is making from NIL deals.
- Avoid Mixing Personal and Business Funds: Keeping NIL earnings separate helps prevent the co-mingling of personal and business finances, making it easier to manage and report taxes.
- Building Good Financial Habits: Your child will get into the habit of managing their finances properly from the start, learning to track income and expenses systematically.
💡 Pro Tip: Open a business account (even if it’s under your child’s name) to keep everything related to NIL income organized, especially if they’re earning significant amounts.
3. Teach Budgeting and Money Management
One of the most valuable skills your child can learn is budgeting. Without it, they risk overspending and failing to save or invest for the future. Help them create a budget that includes savings, spending, and long-term goals.
How to Set Up a Budget:
- Track Income: Ensure they are tracking every NIL deal, sponsorship, or endorsement payment they receive.
- Set Aside for Taxes: A general rule is to set aside 25-30% of NIL income for taxes.
- Prioritize Savings: Teach your child to allocate a portion of their earnings for long-term savings (e.g., retirement, investments, etc.) and emergency funds (set aside at least 3-6 months of living expenses).
- Manage Discretionary Spending: Help them create limits for non-essential spending—whether it’s for travel, leisure, or purchasing gear.
đź’ˇ Pro Tip: Use budgeting apps like Mint, YNAB, or GoodBudget to help them manage their finances. These apps allow them to easily categorize expenses, track savings, and set financial goals.
4. Help Them Understand the Importance of Taxes
One of the biggest pitfalls for young athletes is failing to realize how NIL earnings affect their taxes. NIL income is self-employment income, and that means the athlete must file taxes on their earnings. Without tax planning, they may find themselves facing hefty penalties or an unexpected tax bill.
Steps to Take:
- Set Aside Tax Money: Make sure your child is putting aside 30% of their earnings for taxes to avoid a surprise tax bill.
- Work with a Tax Professional: Help your athlete hire a tax professional who can guide them through the tax implications of NIL earnings, including quarterly tax payments and any potential deductions (e.g., business-related expenses).
- Keep Records: Encourage them to track all income and expenses related to NIL earnings to ensure accurate tax filing.
đź’ˇ Pro Tip: Be sure to file taxes quarterly to avoid penalties. As a self-employed individual, your child may need to pay estimated taxes four times a year.
5. Consider Investing for the Future
Now that your child has the opportunity to earn money, it’s time to teach them the importance of investing. Even small contributions to investments can grow significantly over time, and starting early can set them up for long-term financial success.
Basic Investment Strategies to Consider:
- Roth IRA: Open a Roth IRA for your child. Contributions grow tax-free and can be accessed tax-free after age 59½.
- Index Funds or ETFs: Help them invest in low-cost index funds or ETFs, which are safe, long-term investments that grow with the market.
- Real Estate or Other Ventures: If they’re interested in entrepreneurship, encourage them to explore investing in real estate or starting their own small business using NIL earnings.
đź’ˇ Pro Tip: The earlier they start investing, the more they can benefit from compounding interest. Even small, consistent investments can lead to significant growth over time.
6. Protect Their Brand and Income
As NIL becomes a significant part of your child’s career, it’s essential to protect their personal brand and earnings. This includes being cautious about who they partner with, understanding contract terms, and ensuring their financial assets are safeguarded.
Steps to Protect Their Brand:
- Legal Protection: Consult a sports lawyer to review any NIL contracts before signing, ensuring the terms are fair and protect your child’s interests.
- Branding Consistency: Teach them how to manage their public image and protect their brand. Social media can be an incredibly powerful tool but can also lead to negative consequences if not managed responsibly.
- Insurance: If applicable, ensure they have appropriate insurance coverage for injuries, disability, or loss of income in case something happens to affect their ability to perform or earn.
đź’ˇ Pro Tip: Work with professionals, including a lawyer and agent, who specialize in NIL and athlete management to ensure they are legally protected and making wise financial decisions.
7. Encourage Long-Term Financial Goals
Help your child focus not just on short-term spending, but also on long-term goals. This could include saving for post-college plans, buying a house, or investing in future ventures. By teaching them to think ahead, you’ll help them build wealth and make decisions that benefit them well beyond their athletic career.
Long-Term Goals to Discuss:
- College and Career Plans: Saving for tuition, a career in business, or pursuing a graduate degree.
- Post-Sports Plans: Starting a business or building a career outside of athletics.
- Retirement Savings: Begin planning for retirement even at a young age, setting them up for financial security after they finish their playing days.
đź’ˇ Pro Tip: Teach your child to think of NIL earnings as part of a larger financial plan that includes both short-term needs and long-term goals.
Final Thoughts: Supporting Your Athlete’s Financial Future
Managing NIL earnings requires careful planning, education, and organization. By helping your child set up a budget, understand taxes, invest for the future, and protect their brand, you’re giving them the tools they need to not only succeed in the short term but also build a strong financial future.
As a parent, your involvement is critical in ensuring that they make smart, informed decisions when it comes to their earnings. The more financially literate your child becomes, the better equipped they will be to manage their income, protect their wealth, and achieve long-term financial success.
