As parents, we want to give our children the best opportunity for a successful future and providing them with financial security is one way to do that.
Saving for your kid’s future can seem daunting, but with a few strategies and some planning, you can get started.
Why starting early matters
The sooner you begin to save for your child’s future, the more you can accumulate, and the easier it gets.
Starting early allows you to take advantage of compound interest, in which the interest accrued on an investment is reinvested and begins earning additional interest.
Just like saving for retirement, where the concept of compounding can work wonders, the same is true for saving for a child’s future.
- Start a savings account for your child:
As your kids are not yet hustling in a 9 to 5 job yet, they will still receive money at various times that can be kept in a bank account. Generous ang bao money, cash gifts from family members and your own savings can accrue interest if you stash them in a savings account rather than putting them into a piggy bank.
To save for your kid’s future, you should open up a savings account and set aside money each month or week. Doing this will ensure that your money is put away in a safe place and can grow over time with interest. You can also take advantage of any bank promotions and bonuses that are available to maximize your savings.
- Save up for their education
In 2021, the StraitsTimes reported that personal loans and overdraft balances for those under 30 increased by a staggering 23% from Q4 of 2020 to Q1 of 2021. Imagine the burden of student loan debt that the next generation is going to have to shoulder.
Therefore, it is important to invest in a child’s education by setting aside money for college tuition or other higher education expenses. Making sure that you have enough saved up so that when the time comes for your kids to go on to college, they will be able to do so without having to worry about finances. With wise investments, you can create a secure financial future for your children and give them the best chance at success.
- Consider a custodial shared account
Establishing a custodial savings account at either a bank or brokerage is the optimal way to ensure that your child has limited access to their funds until they reach 18 (or 25, depending on your state). You’ll be able to manage and control this account for them up until then. Afterward, when they are eligible, you can authorize them to start using the money in the account as needed.
- Teaching them financial literacy
As parents, we know the importance of financial literacy, and we should make sure our kids are educated on the same. Teaching your children about money management, budgeting, saving, and investing will help them understand how to make their own financial decisions in the future.
As the saying goes, “teach him how to fish and you feed him for his lifetime”, and this applies to teaching children about personal finance. As your child grows and develops, you can introduce more complex concepts such as creating a budget, understanding credit cards and loans, building an investment portfolio, and other financial strategies.
A tip for parents when it comes to saving for your child:
Setting guidelines ahead of time can help ensure that the funds are used responsibly when your child is old enough to access them. Have an open discussion with your child about expectations and consider creating a budget to help manage their funds post-custodianship, such as setting aside money for college or other future expenses. Additionally, discussing the rewards and consequences associated with saving can help reinforce the importance of valuing money and understanding how to use it wisely.
It’s never too early to start teaching your child about personal finance and building good financial habits, so introducing topics like budgeting, learning to save, establishing credit, and avoiding debt are important conversations to have as your child transitions into adulthood.
A better way to instil financial literacy in your children
When talking to your children about money management, it is important to start with the basics.
Financial literacy starts with teaching them the value of money and the importance of saving. Explain to them how goods, services, and investments are exchanged for money, and why it is important to save part of what they receive.
There are actually many apps and websites that provide educational games and activities specifically designed to teach children money management in a fun and interactive way.
Milestone is one such revolutionary app that encourages families to explore financial literacy together; allowing kids and parents alike to gain a skill that will continue to benefit them for life. Through interactive activities, such as setting saving goals and completing chores, children are able to learn the fundamentals of budgeting while still having fun!
