Here is a List of Helpful Tips to Invest Your Children's Savings for a Bright Future
So now, you have taught your kids on the importance of saving. Indeed, it is never too early or too late to teach them to be frugal and become financially prepared. Maybe the start of their financial journey is the use of piggy banks or regular savings account. While these schemes are alright, you should teach them ways to invest children’s savings.
While saving may be the best way to start your children’s road to financial freedom, it is time to explain to them that investment is the next step to make your money work. As parents, our goal is raising them into responsible adults. And if they know how to invest, they will establish good habits to make it happen in the future like becoming a millionaire at the age of 21 years old. Looking for ways to invest children’s savings early on will serve as a link to success in the future.
We live in a world where money matters. So, children should be taught not to “place their eggs in one basket” as they say. Tell them that investing is a means of using money to create more money. With this basic idea, here are some best ways to invest children’s savings.
Invest for Your Kid's College Education
Whether you agree or not, college costs a fortune. By the time your children go to university, it will have to cost even more. One of the ways to invest children’s savings is to have their money make more money through the compound interest of a college savings plan. Investing for a college fund can help your kids avoid a future filled with paying off debts incurred in tuition fees and other miscellaneous expenses.
While the US retains to be the world’s most popular destination for international students, it cannot be denied thatt it's also one of the priciest. Knowing that makes it tougher for parents to send their kids to prestigious schools. They have to shell out at least $40,000 yearly to finance their children’s education. Imagine what that sum will be in 10 years’ time? It's great there are educational savings plan to help fund your kid's university education. From the money in their savings account, you can use that to acquire an educational plan which is one of the ways to invest children’s savings.
In this case, opening a 529 Plan is recommended. 529s are savings plans, usually sponsored by state governments, that encourage saving for future education costs. They often are tax-friendly, in the sense that many states will let you deduct your contributions from your state income tax – and when you withdraw the money for college, the money won't be taxed. You can securing saving the money into your own state's 529 or any other state's plan.
Having a 529 plan helps parents save and make it sure there’ll be enough money for the kids’ college education. It's never too late to start saving for education, but it would be better to start saving when the kids are still young for the reason that there is more time for the account to grow. By the time the fund matures, it will be enough to cover their college years and you don’t have to worry on financial burden. The important thing to do is to keep putting in money to your child's 529 every year and every month. Having a well-tracked 529 plan is one of the effective ways to invest children's savings.
Teach Your Child to Save Up and Invest in Stocks
Buying stocks is another of the ways to invest children’s savings. Let’s say you have 10 years to prepare financially for their future, putting their money long term in high-risk but with high-interest stocks mean their funds will grow at higher rates too. You can purchase stocks directly from selected companies even through online. Some still offer physical certificates that recognize stock purchases.
Stocks also pay attractive dividends since giant companies make a lot of money. They’ve been in business for 20 years or more and have good balance sheets. You can stir your kids’ interest by directing to them that they could own a portion of Google or Coca-Cola. Stocks are very safe and stable they are one of the highly recommended profitable ways to invest children’s savings.
Putting some money in shares is also a smart way of investing children’s savings because unlike the investment bonds, you will have a complete control over where your kids’ money is invested and in what companies. Just like having a simple savings account, you can help improve your children’s financial literacy by having them involved and learn the process.
You can open a share for your children via custodial account on Etrade. Just like in mutual funds, you’ll handle your children’s account and under your name until they reach legal age. You can begin teaching them on public ownership and that they can also be a part of their favorite companies. By putting money in shares as ways to invest children’s savings, they will acquire higher yields the sooner they start investing.
Get An In Trust For (ITF) Savings Account
Still one of the ways to invest children’s savings worth mentioning is the IN TRUST FOR (ITF) savings account. This is an arrangement where you will open and manage the savings account on behalf of your kids. In case you die, your children will automatically become the owner of the account. But if your kids are still minors at the time of your death, a guardian or trustee will be appointed to oversee the savings account.
Sometimes the age where kids can take over the ITF savings account depends on the bank or on the particular deposit product opened for such intention. Some banks allow kids as young as 13 years of age to own their accounts. There are also instances when the child can take over his account at the age of 18. When this happens, the bank will require proof of birth like birth certificate and valid IDs, this is how ITF runs in transferring the possession of money to your kids and one of the ways to invest children’s savings.
Option For Money Market Accounts
When thinking of ways to invest children’s savings, you may consider money market accounts. They are similar to savings accounts except that they offer higher returns. You can open a money market account at a local bank or online. After that you can then access your money either at an automated machine account (ATM) or by a web-based account management.
Because money market accounts are uncomplicated to use and can be withdrawn at any time this is one of the ways to invest children’s savings. Be mindful though that sometimes money market fees could weaken your returns. So, as with any other investment strategy, you should negotiate and compare fees and features first before deciding which one is the most feasible to keep your kids’ savings.
Consider Retail Treasury Bonds (RTBS)
They’re like the “I-owe-you” thing checks or bonds that cover the shortage in the national budget when the taxes collected are not enough to fund government projects. Now, the “retail” part is the key here as it allows you to take part in the government’s borrowing system. It encourages saving and spreads the benefits of government bonds to a comprehensive base, this is Retail Treasury Bond, one of the ways to invest children’s savings.
You can discuss this with your bank. This is a short-term basis wherein you may reclaim the instrument (or bond) after a period of years. Since it is government guaranteed, T-bonds are direct, unconditional and general obligations and they have higher interest rates than time deposits. The cash flow of RT Bonds, which is one of the ways to invest children’s savings, is more frequent and is paid usually every 3 months.
Maybe you’ve heard your parents reminisce about how cheap prices of products used to be in their heydays. Well this is because inflation wears off the value of money as the years go by. Hence, if you’ve been keeping your children’s funds in a savings account, keep them for longer term goals which are ways to invest children’s savings. By investing you will be able to thwart inflation, increase your chances to be able to afford the amount of commodities and services in the coming years that you’re able to in the present.
Looking for ways to invest children’s savings make your kids’ money work because of compounding. Compound earnings are the additional interests from the yield (or return) earned from the investment. The earlier you start to invest your kids’ money, the more benefit they earn from compounding.
Read the Entire Saving for Kids Series
- How Tough Love Can Teach Your Kids to Save
- 5 Fun Games to Teach Your Kids About Money
- 36 Expert Ideas on Teaching Kids Money Saving Tips
- 3 Tools to Teach Your Kids Practical Money Skills
About the Author
Joseph Hogue is a financial expert and investment analyst. After serving in the Marine Corps, he started his career investing in real estate before becoming an investment analyst for some of the largest private investors. He's appeared on Bloomberg and on CNBC as an investment expert and has published ten books in personal finance. Now he helps investors reach their financial goals and invest in the stock market with some of the same advice he used when working for the rich.