When you’re thinking about your financial plan, what are your priorities? Often, passing on wealth and helping children or grandchildren realise their own goals is important.

Despite a period of economic uncertainty, a survey from Scottish Widows found that 77% of UK households are still planning for the financial wellbeing of other generations. This could include children and grandchildren, as well as older relatives that may need additional support.

If you want to focus on creating long-term financial security for your family, here are seven important steps to take.

1. Build up your emergency fund

To achieve long-term financial security, you need to have a solid foundation. If you don’t already have an emergency fund, it’s a good place to start.

Having three to six months of expenses in an easy access account can provide a safety net if your income temporarily stops or you face a bill. It can help ensure you can continue to meet financial commitments even if the unexpected happens, including things like contributing to a nest egg for your child’s future.

An HSBC study found that the average emergency fund balance is £7,606. However, 18% of people had £1,000 or less.

You should go through your budget to calculate a target for your rainy day fund.

2. Assess if financial protection could provide peace of mind

Unexpected financial shocks can knock even the best-laid plans off course. An emergency fund can provide some peace of mind, but for larger shocks, financial protection can be useful.

Depending on the type of financial protection you pick, it could pay out if you’re unable to work due to an accident or if you’re diagnosed with a critical illness. Other options, such as life insurance, could provide your family with money if you pass away.

Appropriate financial protection can help your family manage their finances even if the worst happens.

It’s worth checking your employer’s benefit scheme too. So employers may provide financial protection, such as life insurance or an enhanced sick pay policy, that could meet your needs.

3. Start saving on your child’s behalf

It’s never too soon to start building a nest egg for your child.

If you start putting money away while they’re still young, it has longer to earn interest. It can also make regular contributions part of your budget and more manageable.

A nest egg can help children start engaging with money and understand why saving is important from an early age. It could also support their goals, such as going to university or buying their first car.

One thing you need to consider is what type of account to choose. An easy access children’s account can be valuable if you want to use the money in the short or medium term. In contrast, they wouldn’t be able to access the money saved in a Junior ISA (JISA) until they were 18.

4. Consider investing for their future

If you want to save for your child with a long-term view, investing could make sense.

While returns cannot be guaranteed, investing could provide you with a way to grow the nest egg you’re building. It could be an option to consider if you have a goal in mind that’s further than five years away, such as helping them to buy a home.

When investing, it’s important to understand the risks and to choose options that are right for your risk profile.

It is also possible to open a pension for your child. Non-taxpayers, including children, can add up to £2,880 to a pension in the 2022/23 tax year and benefit from tax relief to boost savings further. Remember, a pension is a long-term investment and the child will usually not be able to access the money held in it until they reach pension age, so it’s not the right choice for everyone.

5. Talk about finances with your family

Helping your children financially doesn’t have to mean giving them money – knowledge can be invaluable too.

Talking about finances can be really useful. From discussing saving pocket money with young children to helping adult children navigate saving into a pension, simply having someone to discuss finances with can help create long-term financial security.

It’s an approach that can mean they make better decisions and are comfortable seeking support if they need it.

6. Write your will and commit to reviewing it

Writing a will is the only way to ensure your assets are passed on to who you want. Don’t assume your wealth will automatically go to your children, as this isn’t always the case.

A will means you can set out who you want to benefit from your estate and specify what you’d like them to receive.

While you can write your own will, it’s often advisable to seek legal advice, especially if your circumstances are complex. This can minimise the chance of mistakes occurring.

As your circumstances change, your wishes may do too. So, commit to reviewing your will regularly and updating it if necessary.

7. Calculate if Inheritance Tax could affect your estate

The standard rate of Inheritance Tax (IHT) is 40%. So, if the value of your entire estate exceeds certain thresholds, it could reduce what you leave behind for your family. However, there are often steps you can take to reduce an IHT bill if you’re proactive.

The nil-rate band is £325,000 for the 2022/23 tax year – if the value of your estate is below this threshold, it will not be liable for IHT. If you leave your main home to your children or grandchildren you can also use the residence nil-rate band, which is £175,000 for the 2022/23 tax year.

As a result, many people can pass on up to £500,000 before IHT is due. If you’re married or in a civil partnership, you can also pass on unused allowances. This means if you plan with your partner, you may be able to pass on up to £1 million before IHT is due.

Effective estate planning could help you make the most of other allowances to pass on as much as possible to your family.

Contact us to talk about your family’s financial security

While the above seven steps can help improve your child’s financial security, your plan should be tailored to you and there are often other things you can do. Please contact us to arrange a meeting and discuss what steps you could take.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of investments and income from them can go down. You may not get back the original amount invested.

Past performance is not a reliable indicator of future performance.

The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.

Note that financial protection plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.