Millennials have entered the current year as the largest generation in the United States. They’re also the most educationally and ethnically diverse generation in its history. They’re taking a different approach to forming families, which isn’t that surprising. And how they’re handling their finances is an excellent example of that. A recent study shows that many millennials have absolutely nothing saved. Even though most of them have full-time jobs, the cost of living and student loans puts a lot of financial pressure. If you’re a millennial parent, you might be wondering best way to save money for kids. Today, we will look at some tips to help you do just that.
Related Articles in this blog:
- 10 Tips for Household Money Management
- Explain Money to Children, 11 Reasons Why it is Useful
- How Young is Too Young to Understand Money?
- Money Lessons for Kids? Values, Saving, Spending and Giving
- 10 Mistakes Parents Make in Teaching Kids about Money
- How Much Should Be a Kids Pocket Money per Week
- How to Teach Kids About Money at Every Age?
- 7 Ways of Teaching Money Concept to Children
- 10 Best Ways to Teach Kids About Money
- 8 Ways Daily Money Management Activities to Teach Financial Literacy to Kids
- Teach Teens About Money (including credit card and mobile app)
But first, let’s discuss…
Table of Contents
Why Saving Money is Important
When it comes to saving money for kids, you can consider many different options. Some parents choose to put funds into a custodial account directly to the child upon reaching adulthood, while others open up a savings plan or use a Roth IRA.
Regardless of how you decide to save, it’s important to remember that your child’s primary goal is to help build a solid financial foundation. Furthermore, by saving money for your kids, you’re teaching them how to be responsible with their finances.
What Can Kids Do With the Money They Save
The beauty of saving money is that kids can use it for various purposes. For example, if you open up a 529 college savings plan, the funds can be used to cover tuition, books, room and board, or other educational expenses.
Alternatively, suppose you choose to put money into a custodial account or open up a Roth IRA for your child. In that case, Kids can use the money to cover general living expenses once they reach adulthood.
Some kids may even decide to start their businesses with their saved funds, which is a great way to encourage entrepreneurship and financial independence.
8 Best Ways to Save Money for Kids
We’ve established that saving money for kids is essential, but how can you do it? Here are 8 tips that will help you get started:
1. Create a Savings Account
Let’s start with the most obvious: opening a savings account for your kids.
One of the best ways to save money for kids is by opening up a savings account with them. That is an easy and convenient way to start building their financial foundation.
What do you need to open a savings account? First, you’ll need to choose a bank – some of your options might include local credit unions and large commercial banks.
Be sure to ask about any fees associated with the account, how much money is needed for the initial deposit, and how often interest accrues on balance.
2. 529 College Savings
Another option to consider is a 529 college savings plan. This financial investment vehicle allows you to contribute money now (often tax-free) to cover educational expenses, including tuition and room and board.
There are different types of 529 plans available, offering various benefits – so it’s essential to do your research to find the best option for you and your family.
But in general, here’s how a 529 college savings plan works: you make contributions to the account, and your earnings grow tax-free.
And when it comes time for your child to use their funds, they can be withdrawn tax-free.
3. Use a Roth IRA
If you’re looking at how to save money for kids and want something that can be used later in life, a Roth IRA may be a good option.
A Roth IRA is an individual retirement account that offers tax-free growth and tax-free withdrawals.
The main benefit of a Roth IRA is that it grows over time, and your child will be able to use their funds for retirement.
You should be aware that you cannot contribute more than $5,500 per year (if you are under 50). However, there are catch-up provisions if you’re 50 or older, in which case you can contribute up to $6,500 per year.
4. Health Savings Account
Another option for saving money for kids is a health savings account (HSA).
As the name suggests, an HSA is explicitly used for healthcare expenses – and the beauty of it is that eligible medical costs can be paid for with pretax dollars.
Not only that, but the money in an HSA grows tax-free, and withdrawals are also tax-free as long as for qualified medical expenses.
To open an HSA, you must enroll in a high-deductible health insurance plan. Kids can use the money to contribute to deductibles, copayments, and other out-of-pocket healthcare expenses.
5. ABLE Account
If you have a child with a disability, an ABLE account may be a good option for saving money.
An ABLE account is a tax-advantaged investment account specifically designed to help those with disabilities and their families save money.
Like a 529 college savings plan, funds in an ABLE account can be used for a range of expenses related to the disability, including housing, transportation, education, and even employment training.
6. Custodial Account
One smart option you should consider is a custodial account.
A custodial account is an investment account expressly for a minor child. Kids can use the money for various purposes, including education, healthcare, and even living expenses.
When dealing with a custodial account, it would be best to remember that when the child reaches the age of 18 (or 21, depending on the state), they will receive complete control of the account.
For that reason, it is essential only to put money into a custodial account that you are comfortable losing complete control over.
7. Start a Trust Fund
If you want something with long-term benefits that will be out of your child’s control when they turn 18, a trust fund may be the right option for you.
A trust fund is set up by one or more individuals who appoint someone to manage and invest the money in the account. A trustee could be an individual, but it could also be a bank or other financial institution.
Kids can use trust fund money for various purposes, including education, healthcare, and even retirement.
One thing to keep in mind: a trust fund can be a complex legal arrangement, so it’s essential to speak with an attorney before setting one up.
8. Money-Saving Tools
A few different money-saving tools can help you save money for kids. One option is to use a tool like Digit, which helps you automatically save money by transferring small amounts of money from your checking account into a savings account.
Another option is to use a tool like Acorns, which automatically allows you to invest your spare change using round-ups or one-time deposits.
- Budget App: Goodbudget
- Investing App: Acorns
- Saving App: Digit
- Cash Back: Rakuten
- Track Spending of multiple accounts: Mint
Closing Thoughts
Overall, parents can use various tools and strategies to help their children save money effectively. Whether you choose to use a Roth IRA, an HSA, an ABLE account, a custodial account, or a trust fund, the most important thing is saving as early as possible. By following the tips above, you can help your kids reach their financial goals and build a secure future for themselves.
About Me
Hi, there. I am Lin. Together with my husband and two kids, we live in the beautiful Netherlands in Europe. I am dedicated to self-development, creating quality time for the whole family, and fully supporting kids with their potentials with all I have learned from engineering, MBA, and 10+ years of working experience in the energy sector.
4 Comments
Comments are closed.