What is the Best Way to Save Money for Your Children?

Financial experts recommend that in order to save a nice sized nest egg, you should save six times your current salary by the time you’re 50. However, that number increases if you have kids you’re trying to save for. 

Aside from putting away everyday savings for emergencies, you should also be saving money for your children’s futures. What’s the best way to save money for your child?

The best way is to combine a few of the financial strategies that experts recommend instead of just saving in one way. Here are a few of the best ways to save. If you can combine them all, then you’re sure to have enough to set your kids up for a bright financial future.

Want to start investing for yourself and your children now? Download the Wealth Stack app to get started today.

Start Saving Early

Don’t worry if you don’t currently have any savings. There’s still time! In fact, about 29% of Americans aged 55 and over have no form of retirement savings, according to Investopedia.

However, if you can then we definitely recommend starting to save as early as possible. There’s no time like the present. If you’re in your 20s or 30s and know that you’ll want to have kids later in the future then now is definitely the right time to start.

In your 30s? Check out our article on the 3 Types of Investment Accounts to Open in Your 30s.

If you have a job with an employer who provides certain investment options, you’ll want to at least take a look at what they’re offering. This can include:

  • 401(k): These types of retirement accounts are often employer-sponsored. They also provide you with tax-deferred earnings and benefits from compound growth over time, especially if you start adding to one in your 20s.
  • IRA: This is short for “individualized retirement account” and it works similarly to a 401(k) when it comes to taxes. When you make contributions to your IRA you can deduct that on your tax return.

These are both great options. But, if you plan on investing money into a savings account as part of saving for your children, then it makes more sense to invest your money in ways that provide higher rates of growth and return.

If a 401(k) or an IRA aren’t options for you, then consider opening a high-yield savings account in your child’s name. Make a game out of adding to it. Whenever they do great in school or achieve an accomplishment, make a larger deposit!

Plan for Financials of the Future

Budgeting experts will tell you that the first thing to do when figuring out a savings plan is to determine a budget.

Ask yourself the questions: 

  • How much money will I need in retirement?
  • How much money do I want to pass down to each of my children?
  • How far will this money stretch in 10, 20, or 30 years?

The answer to the first question really depends on the type of lifestyle you want to live. You might try speaking with a financial advisor about the kind of inflation you can expect to see in about twenty years.

Historical inflation rates typically show that expenses increase at about 3% each year. Plan for this when it comes time to determine an ideal nest egg amount. Then, you’ll be able to work more effectively towards that number whether you’re saving or investing. If you think investing is the best way to save money for kids, then choose investments that increase with inflation.

Invest with Inflation in Mind

Learning how to save money for kids means understanding the various risks involved when it comes to investing. Tracking the growth of your nest egg is much like tracking the growth of a student: it comes with its ups and downs and risks involved.

You might be able to build up a hefty nest egg simply by saving and adding to your 401(k) account. If you learn how to invest wisely, however, you can see savings increases of up to hundreds of thousands of dollars.

Not looking to take on too much risk and the chance of losing your child’s future savings? Opt for investments that rise with inflation. These include things such as:

  • Treasury Inflation Protected Securities: These government-owned bonds increase in value as inflation increases. They’re issued in maturities of five, ten, and thirty years. Even though interest payments might not keep up, they’re still pretty low-risk.
  • Equity or Mortgage Trusts: Instead of purchasing an investment property yourself, try investing in a real estate trust. A company will manage the assets for you. While there’s a little risk involved due to housing market changes, it’s better than the stock market.

The right kind of investment will depend on your comfort level and level of financial availability. It’s best to speak with a professional about all of the details regarding different kinds of stocks and investment opportunities.

Model Great Financial Behavior

Saving money for kids is easy when they see you modeling good financial behavior. This means that, if you’re going to get your children involved in the act of saving money, you’ll want to show them how it’s done first.

Consider starting by putting away $1 a day. You can even make it a game. If you save $1 a day, your child will have $6,570 by the time they turn 18. Let’s say they’ve put away $1 a day with you (obviously with a little help in the first few years). By the time they’re 18, they’ll have your $6,570 and theirs. That’s $13,140.

Now, because you’ve taught them how to save and spend correctly, they’ll know how to invest that money. If they’re smart about where they save and invest it, they might be able to snag a small-cap value stocks opportunity at 12% interest rate. 

That’s a growth rate of over $1,500 a year! By the time they’re 65, they’ll have saved over $70,000 on that growth alone. And that’s assuming they don’t grow more money savvy and invest in other ways.

The Best Way to Save Money for Your Child

What’s the best way to save money for your child? To start now. As the saying goes: “The best time to plant a tree was 20 years ago. The second best time is now.”

It doesn’t matter if your children are already teenagers or if you’re pre-planning for your family’s future. The best way to save for your children is to start now, so matter how small.

Show them the value of hard work and let them learn how to grow as an independent saver. If you want to monetize that hard work, you might even help them turn their savings into a venture into entrepreneurship. Or, simply help them learn the basics of investing. Then, when they’re old enough, they can download Wealth Stack and invest for themselves.

Until then, you can start investing on their behalf, and on behalf of your entire family. Download Wealth Stack here to get started.