When the economic present is bleak, plan for the future

With all that’s happened in the economy in the past year, even the most careful money managers are wondering if there’s anything they should be doing differently.

Parents, who are still trying to figure out how to explain a financial crisis they barely understand themselves to their kids, worry about paying for activities, affording college, and preparing children to succeed financially out in the world.

To start, parents should do what they can to make sure their family is fiscally fit in good economic times and bad.

That’s the advice from Kevin McKinley, a down-to-earth Dad, certified financial planner, and public radio host in Eau Claire, Wis. He’s also the author of Make Your Kid a Millionaire: 11 Easy Ways Anyone Can Secure a Child’s Financial Future. Here are his five tips for getting your financial house in order and your child on the road to seven figures.

1. Save for retirement before college. The old saw about being able to borrow for college but not retirement may have been tested when the student loan market tightened up recently, but much has been done to improve access to student loans since then. And the simple truth is that not being prepared for retirement increases the odds that your financial woes will burden your kids. So retirement first, even if it means student loans and picking a lower-priced college.

2. Stay insured. Life insurance may seem like a luxury when money is tight, but if a breadwinner dies, most families would find themselves financially devastated without it. “Get term life insurance on your own, because you may lose employer-provided coverage if you lose your job,” said McKinley. If you’re healthy, you may find that a policy independent from work is cheaper anyway.

3. Save more. Like many advisers, McKinley has upped the amount of emergency savings he thinks families need in uncertain times from three months to 12 months. He’d even suggest putting paying off debts on the back burner until you have savings, although if my credit card interest rate were in the high double-digits, I’d have trouble stomaching the interest building up.

4. It never hurts to ask. Apply for financial aid, even if you don’t think you’ll get any. Colleges have money to hand out to students with need and those with talent. Also, learn all you can about the financial aid system, which rivals the U.S. tax code in its complexity. The effort could save thousands of dollars. Have younger kids? There’s no such thing as planning college financing too early.

5. Be open about your finances. Tough times can teach kids about needs versus wants, the value of a dollar and the importance of saving — values that will definitely help junior become a millionaire. “Regardless of how bad your financial sacrifices have to be, don’t worry about your kids,” McKinley says. “They’ll survive. After all, it wasn’t too long ago that you had to convince them not to eat dirt.” Priceless words of wisdom from a dollar-smart daddy.

Kara McGuire is the Star Tribune’s personal finance columnist and a St. Paul mother of three. Follow her on Twitter: Twitter.com/kablog.