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As a parent, it may seem like you have to teach your child a million things before they grow up and step into the world on their own. From learning to tie their own shoes to learning right from wrong, the life skills children need are endless. But one huge lesson that every parent needs to think about is how to save money for their children’s future. This includes actions taken by parents, as well as saving tips for children so that they can learn important money management skills and be set up for a financially-secure future. So without further ado, here is your guide on saving for your children’s future and teaching them how to do it for themselves.
Why is saving early for your children’s future a huge benefit?
Most likely, everyone can agree that if they could have started saving earlier, they would. Or, they at least acknowledge that it is a wise idea. But why? Well, here are a couple reasons to explain why it is a good idea to start saving for your child’s future early:
- Practice makes permanent
Putting into practice the action of saving money is going to set a child up into a good habit as they get older. For example, when I was younger and would collect money from birthdays, my mom would remind me to be smart with my money and to save it for something in the future. This saving tip for children was a practice that actually made me think twice about what I would spend my money on instead of impulsively buying whatever my child’s heart desired. This is a mindset I still keep today. Everytime I get paid or receive money, I put it away so I am not tempted to just go out and buy whatever I want. Childhood habits extend into adulthood!
- Be prepared
A huge reason why people save is so that if there was ever an emergency, there is at least some money that has been put away for a rainy day. The same concept can be applied to children. It may not be as urgent, but it still may be hugely beneficial. An example of a preparation saving tip for children is putting money away for college. College is one of those things where saving is absolutely crucial no matter how young your child is or even if you think your kid may not end up going to a university. The act of saving for a future goal is unregrettable and will no doubt be a very important sum of money for your child’s future.
- Reduces stress
Money is one of those concerns that can lead to a stressful life. Knowing that a child is saving money gives a sense of relief and peace of mind. The earlier you teach your child to save money, the better prepared they will be for life, especially when times become difficult. Helping your child save for the future will hopefully guide them to make more calculated risk when money becomes tight.
- Long-term security
Since the future is uncertain, saving brings a sense of security. The younger a child starts learning how to save money for the future, the more opportunity they can have with their funds and can even use them as investments to generate more profits. Also, the sooner you start, the better chance of it growing into a big pot!
Ways to start saving money for your children
There are multiple avenues you can take in order to start saving for your child’s future. Instead of boring you with an unnecessarily long list, here are three awesome and easy options to consider when starting this journey:
- Start a savings account for your children
- Open a custodial account for your children
- Set up a Trust Fund for your children
Start a savings account for your children
A savings account is most likely the first thing that pops into your head when thinking about saving for your children’s future and it’s not a bad idea! This is usually a convenient option because it is how most people start out and it can be conjoined with whatever bank the parent currently uses. It is probably the option that requires the least amount of effort since all you really have to do is store money away. Furthermore, depending on which bank and type of saving account you use, there may be tax benefits available and compound interest! Another plus is that this is a joint ownership between the parent and child. Opening a savings account for your child will provide a safe place for their money, all while teaching them about banking and money management. It can provide a great source of motivation for your kids if they understand that their money will grow over time so long as they do not touch it.
This is also a great opportunity for compound interest. For example, if a parent contributes $50 a month to their 5 year old’s savings account, at an average interest rate earning of 5%, they will end up with $10,722! If they put $100 a month, it will be $22,102! Wow.
Open a custodial account for your children
If you want to be more involved in saving for your children’s future and with their finances, then a custodial account may be the right choice for you! A custodial account is an account that the parents set up and manage on their children’s behalf and the child can take it over once they become a legal adult. Once the account has been established, any adult can contribute to it and the deposit cannot be revoked. There are two types of accounts: Uniform Gifts to Minors Act (UGMA) which holds financial assets and is limited to financial products only and the Uniform Transfers to Minors Act (UTMA) which covers financial products and also can hold property and REITs. To open a custodial account, all you need is basic information about your child: name, birthday, and their social security number. Once it’s set up, the parent is able to manage all of the actions in the account like deposits and deciding which assets to invest in. Some benefits of a custodial account include its efficiency since it is easy to establish, it is flexible because there are no income or contribution limits and no penalties for early withdrawals. It also offers variety since these accounts can trade or hold any asset or investment offered through the financial institution. Finally, there are tax advantages (earnings are generally taxed at the child’s – usually lower – tax rate, rather than the parent’s rate).
Set up a Trust Fund for your children
There is a huge misconception that trust funds are only for extremely wealthy families. A trust fund is a legal entity that houses or holds assets for the benefit of a third party (also called a beneficiary.) I mean, you barely hear of anyone in a public school with a trust fund, right? However, this is so far from the truth. While it may have been somewhat true at one point in time, it is still beneficial regardless of how significant your wealth is. Setting up a trust fund for your child can allow them to do many things, such as:
- Potentially reduce estate taxes in the future
- Potentially reduce gift taxes in the future
- Keep your estate out of probate
- Allow you to protect loved ones with special needs
- Offer protection from lawsuits or creditors
Setting up a trust fund as a means of saving for your children’s future is a surefire way towards financial freedom and a bright future. A trust fund may require more involvement than the other options but all you need is the right trustee and the desire to want to protect your children.
Educating your children about saving money
As enticing as it sounds for the parent to want to have control over their children’s finances to set them up as best as they can, it is important to keep in mind that the child needs to learn how to be financially independent as well. That being said, do not be afraid to start the conversation with your child. If a child is educated in money management in their adolescent years, then they will be better prepared for adulthood. Saving money will also inevitably teach other life skills like learning to stay focused on goals, priorities, and responsibilities. Our investment app for minors is the best way to teach your children how to save for the future! Invstr truly wants to educate everybody and push the vision of attaining financial freedom for everyone. The easy to follow modules on Invstr Academy are an excellent source of education since they teach not only about the foundations of investing but other topics such as business basics and economics. This app has an excellent potential to educate and prepare for money situations in the future and savings tips for children.
Establishing and building your child’s credit score
Building credit is usually something most people don’t often begin until their early 20s. I bet most people are not even aware that they can start looking to build their child’s credit at a young age! However, saving early for children also means they can start working on their credit score at a far younger age, and before they become adults.This, in turn, can put your child at a great advantage in the future. So, let’s discuss the positives around what establishing a credit score can do for a child’s financial future:
Establishing credit and learning to use it wisely while you’re young can make saving for the future and transition into adulthood much easier. A credit score impacts many aspects of life such as leasing an apartment, setting up utilities, buying a car, and receiving better interest rates on credit cards and loans. Additionally, an employer may want to look into a person’s credit score to make sure they are responsible and trustworthy. Managing credit is one of the few skills in life that is truly crucial to understand. The position of having bad credit is one that no person wants to be in. This is why the earlier it is for one to learn to manage and use credit, the easier it will be to buy a lot of firsts in life. It is an essential skill to have in order to start down the path of financial success.
Invstr Jr – an investment app for minors
If you are looking for the perfect tool that promotes financial education and is geared toward parents and children, then Invstr Jr is perfect for you. But don’t just take my word for it, our app is rated the number one investment app for education by Bankrate.
Invstr Jr is practically a saving solution for children and parents. It goes beyond just saving tips for children. As a parent, you can put money into your children’s accounts for allowances, completing chores or goals, or even just because you want to! Furthermore, the account comes with a debit card that the parent can use on the child’s behalf. Now, before you panic and think “Oh no, they are definitely going to get demanding with that debit card!” you should know that Invstr Jr also provides award winning, kid-friendly financial education. There are 10 bite-size modules that explain the foundations of many money concepts and if your child doesn’t have the time to read them, they can listen to them on-the-go!
Invstr Jr is also a custodial account where children can learn to invest with their parents, and the younger they start, the greater the reward will be. Parents are able to accept or deny investment proposals from their child, so you can be in the know and supervise how your child saves and makes money at all stages of the process. The child can explore their favourite stocks (and learn about new ones!), and can suggest in-app what they would like to invest in. All in all, our investment app for kids has numerous perks that come with it. If you want to begin saving for your children’s future and want to put them on the best path toward financial freedom, Invstr Jr is the way to go!
Saving is extremely vital. It really cannot be stressed enough.
It is important to start early for children so they can be better prepared for their future. Although it is stereotypical for children to keep their money, hold onto it, and spend it when they want, investing opens a whole other world of opportunity. If you want the best way, the best tip, and the best result for saving for your child’s future, then investing is where you need to start. Just keep in mind that children also learn by example, so it is great if you have your finances together or are working towards financial freedom. Learn together with Invstr Jr!
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.
All investing involves risk and can lead to losses.
Past performance does not guarantee future results.
Invstr Financial LLC (Invstr) is registered as an advisor with the SEC. Securities trading is offered to self-directed investors by Social Invstr LLC, a member of FINRA.
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