Many families have had to rethink their summer plans due to Covid-19 safety concerns. If you have received an unexpected refund when your kid's sleepaway camp didn't open, for example, or your vacation was canceled, don't worry: There are some moves you can make with the money to bolster your finances and make a positive impact on your long-term goals.
You don't need to use all the money that way, of course, says Elle Kaplan, CEO of wealth management firm LexION Capital. Some of it you can still use to create memorable experiences for your family. She recommends setting aside a percentage of any refunds you receive into a "make special memories" slush fund: "That can include camping trips, special family hikes, anything that will create a special and lasting memory for your child and your family."
Once you've done that, here are four other smart ways you can make that money work for you.
Debby Popkin, a nurse from Southington, Connecticut, and her husband had enrolled their 16-year-old son in a digital game design program on a college campus, while her 12-year-old daughter was enrolled at two separate sleepaway camps. If the season had proceeded as planned, these activities would have cost approximately $18,000.
While it's not going to be the summer they intended, Popkin says that her family has found some fun, and safe, activities at lower prices.
Parents who find themselves in a similar situation can set aside any unexpected savings into an emergency fund, says David McHugh, chief marketing officer of the personal finance company Crediful.
"If, after a few months, things with the economy and unemployment are beginning to stabilize, you can take the money and reinvest it into something else," says McHugh. "But right now, it's best to set aside any extra funds just in case you're laid off, get a reduced income, or your bills go up."
Video by David Fang
Initially, Emily Porro, the founder and CEO of Porro Communications and her husband, had planned a trip to Spain and had enrolled their sons in different summer camps. Had these plans gone forward, she estimated that the cost might have been between $4,000 and $6,000.
Another way that parents like Porro can repurpose their camp refunds is by putting them into a health savings account, or HSA, if you have access to one, says Susan Olson, a certified financial planner and partner at Abacus Wealth Partners.
"HSA deposits are the tax trifecta: tax deductible, tax-free growth, and tax-free withdrawals if used for medical expenses," she says. "The accounts can be banked for use in retirement if cash flow is good now, and invested in a target date retirement fund in the meantime."
Video by David Fang
In a similar vein, Kaplan recommends putting any refunds into a 529 account, a special savings account for educational expenses. Funds in 529 accounts grow tax-free and can be withdrawn tax-free for qualified educational expenses. You might even be able to score a state tax break on your contributions.
Marcy J. Wang, managing director of advisory professional development at professional services firm BDO, planned to send her 11-year-old daughter to the same sleepaway camp she's gone to for the last four years and her 16-year-old son to Berlin for a four-week German language immersion program, followed by three weeks at a theater program.
The camp and the theater program were canceled, and the language immersion program is postponed until 2021. Wang estimated that altogether these programs would have cost her family approximately $12,000.
Parents who find themselves in similar circumstances could put the refunded money into a Roth IRA, particularly if their children are old enough for a summer job, says Lou Haverty, CFA and creator of the career site Financial Analyst Insider.
"It's the perfect opportunity to start teaching kids about saving money and the power of compounding interest," he says. "It could be a boring topic for some kids at first, but if they can see their own money grow, it might help them develop an interest in the stock market and about the value of saving money."
Daniel Bukszpan is a freelance writer. A journalist for 20 years, he is the author of "The Encyclopedia of Heavy Metal," published in 2003 by Barnes & Noble and "The Encyclopedia of New Wave," published in 2012 by Sterling Publishing. He also contributed to "AC/DC: High-Voltage Rock 'N' Roll, The Ultimate Illustrated History," "Iron Maiden: The Ultimate Unauthorized History of the Beast," and "Rush: The Illustrated History," published by Voyageur Press. He lives in Brooklyn, New York, with his wife, Asia, and his son, Roman.
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