As a parent of a student-athlete, one of the most important things you can do is help your child build a strong financial foundation for their future. With the rise of NIL (Name, Image, and Likeness) opportunities, a part-time job, or athletic scholarships, your child may begin earning money while still in high school or college. While this can be exciting, it also presents an opportunity to start saving and investing for the future.
This guide will walk you through the key principles of investing and saving for the future, helping your child make the most of their earnings and prepare for long-term financial success.
1. The Importance of Starting Early
The earlier your child begins saving and investing, the better. With compounding interest and the ability to take a long-term approach to investing, starting early can significantly enhance their financial security and wealth-building potential.
Why Start Early?
- Compound Interest: The longer your money is invested, the more it can grow. Compound interest means your child earns interest not just on the initial investment but also on the accumulated interest from previous periods.
- Time on Their Side: Starting to save and invest early gives your child more time to recover from market fluctuations and take advantage of long-term growth in retirement accounts, stocks, or other investments.
💡 Tip: Encourage your child to start small and gradually increase contributions as their income grows. The key is to start as soon as possible.
2. Establishing Financial Goals
Before your child starts saving or investing, it’s important to set financial goals. This will help them stay focused and motivated while managing their money.
Types of Financial Goals:
- Short-Term Goals (1-3 years): These could include saving for emergency expenses, a car, or travel.
- Medium-Term Goals (3-7 years): These might involve saving for college tuition, buying a house, or building an emergency fund.
- Long-Term Goals (10+ years): Long-term goals typically include saving for retirement, starting a business, or financial independence.
💡 Tip: Help your child prioritize their goals. Focus on building an emergency fund first, and then gradually move on to saving for larger goals.
3. Building an Emergency Fund
One of the first steps in financial planning is building an emergency fund. This fund provides a financial cushion for unexpected expenses, such as medical bills, car repairs, or sudden loss of income.
How to Build an Emergency Fund:
- Set a Target Amount: A good starting point is to aim for 3 to 6 months’ worth of living expenses. If your child is still living at home, you can adjust this target based on their personal spending habits.
- Start Small: Even if your child can only save a small amount each month, the key is to stay consistent. They can increase the amount saved as they begin earning more money.
- Choose the Right Account: A high-yield savings account or a money market account can provide a safe place to store emergency funds while earning a small amount of interest.
💡 Tip: Encourage your child to set up automatic transfers into their emergency fund each month. This will help them stay consistent with saving.
4. Saving for College
If your child is a student-athlete, they may be eligible for athletic scholarships, but there may still be additional costs like books, room and board, or other fees. Saving for college should be a priority, even if your child is receiving an athletic scholarship.
Ways to Save for College:
- 529 College Savings Plan: A 529 plan is a tax-advantaged savings plan specifically designed for education expenses. This is a great way to save for college tuition and related costs.
- Coverdell Education Savings Account (ESA): Another option for saving for education, this account allows you to save up to $2,000 per year for a child’s education.
- Scholarships and Grants: While saving for college is important, your child should also apply for as many scholarships and grants as possible to reduce the financial burden.
💡 Tip: Check with your child’s school and athletic program to see if there are any additional resources, grants, or scholarship opportunities available for student-athletes.
5. Understanding Investments
Investing is one of the most powerful tools for building wealth over time. While the world of investments can be overwhelming for young adults, it’s important to start early and learn the basics of how different investment vehicles work.
Types of Investments:
- Stocks: Investing in individual stocks allows your child to own a piece of a company. While stocks can be volatile, they offer long-term growth potential.
- Bonds: Bonds are less risky than stocks and offer a steady return over time. They’re a good option for more conservative investors.
- Mutual Funds & ETFs: These are funds that pool money from many investors to purchase a variety of stocks, bonds, or other assets. They’re less risky than individual stocks and provide diversified exposure to different markets.
- Real Estate: If your child is interested in tangible assets, investing in real estate (e.g., rental properties or REITs) can provide long-term growth and income.
💡 Tip: Encourage your child to begin with a low-cost index fund or Exchange Traded Fund (ETF) to provide broad market exposure and reduce risk.
6. Retirement Accounts: Planning for the Future
While retirement may feel far away for your child, it’s never too early to start saving for it. Retirement accounts such as Roth IRAs or 401(k) plans allow for long-term growth and tax advantages, making them excellent tools for financial planning.
Types of Retirement Accounts:
- Roth IRA: A Roth IRA allows your child to contribute after-tax income, and the money grows tax-free. This is a great option for young people, as they are typically in a lower tax bracket when they start saving.
- Traditional IRA: A Traditional IRA offers tax-deductible contributions but requires taxes to be paid on withdrawals in retirement.
- 401(k): If your child gets a job with a company that offers a 401(k), this is another great way to save for retirement, especially if the company offers matching contributions.
💡 Tip: Help your child open a Roth IRA as soon as they start earning income. The earlier they begin, the more they can take advantage of compound interest over time.
7. Teaching Financial Literacy and Smart Spending
In addition to saving and investing, it’s important to teach your child about smart spending and financial literacy. Understanding how to manage money responsibly is essential for achieving long-term financial success.
Financial Literacy Tips for Your Child:
- Create a Budget: Teach your child to track their income and expenses. A clear budget will help them understand how to manage their finances and make informed decisions about spending.
- Avoid Debt: Help your child avoid credit card debt and other high-interest loans. If they must use credit, ensure they pay off the balance each month.
- Live Within Their Means: Encourage your child to be mindful of their spending and prioritize savings, especially as they begin to earn money from NIL or scholarships.
💡 Tip: Encourage your child to set aside a certain percentage of their income each month for savings and investments, even if it’s a small amount at first.
Final Thoughts: Building a Strong Financial Foundation for the Future
Helping your child learn how to save and invest early on will set them up for long-term financial security. By prioritizing an emergency fund, saving for college, investing for the future, and teaching them smart financial habits, you are providing them with the tools they need to achieve financial independence and success.
As a parent, your support and guidance are critical in helping your child make informed decisions about their finances. Starting early, staying consistent, and working together to set and achieve financial goals will help ensure a bright future—both for their athletic career and their overall financial well-being.
If you have any questions about investments, saving strategies, or need additional resources to help your child manage their finances, feel free to reach out to us at in**@**********************es.com. We’re here to help you guide your athlete toward a successful financial future!
Ready to help your child start saving and investing for the future? Contact us today for more tips and resources!