Raising children in America is more expensive than ever. These days, American parents spend an average of over $233,000 per child from their kids’ birth until age 17, a 40% increase from just two decades ago. While many things go into raising your children successfully today, saving money is an important factor, especially if you get divorced and are providing as a single parent. However, if you plan deliberately and save modest amounts of money regularly, you’ll have the financial resources to ensure a happy childhood, regardless of your marital status. You’ll also set them up for success in adulthood. Here’s what you need to know about saving money for your kids.
Saving for College
If you want to help your children attend college, you should start saving as soon as possible. The average cost of state or public colleges in the United States is now $20,770 each year, while private schools will set you back over $46,950 annually. You can start saving money for your kids’ college costs in many ways. 529 savings plans are a popular option, as are other college education savings accounts. Most plans let you place a set amount of money each year into the savings account; many college savings account plans are tax-deferred too, so they’ll help limit your exposure to Federal income taxes as you continue to save and build up funds.
If you and your child’s parent are divorced, figure out if you should set up separate accounts or a joint one. Either option will help start setting your child up for their future. Talk to a trusted financial advisor to find out which college savings account option is the ideal choice for you.
Setting Aside Cash for Family Events
When it comes to saving money for kids, you should think about family and life experiences. Events such as vacations or even routine outings to the movies or dinners can get expensive as you add additional members to your family. You should consider creating a savings account to use specifically for family events. Set aside a little bit of money each month for this account through an automatic transfer you don’t have to think about and put any windfalls from gift money and the like in the account. If you keep a healthy balance in your family fun account, you’ll always be ready to have a great time with your kids. If you and your child’s parent are divorced, setting up an automatic transfer to a fun account is a great way to prioritize family time in a new family dynamic. Although sometimes divorce may lead to debt, even a small amount set aside in your budget can help demonstrate to your kids smart saving skills, even during difficult times.
Creating a Child’s Savings Account
As soon as your children are born, establish a savings account for them. In most cases, banks will allow you to establish an account and give you custodial control. When your child is young, you can place money he or she receives for birthdays, holiday gifts, and the like into the account, along with any additional money you might have on hand. When your child is a teenager and has a job, discuss a set amount to put into the account from work, gifts, as well as what can be withdrawn from the account for personal use. This helps your kids start with a healthy amount of savings to help cover the cost of things such as education, car insurance, and other key bills. It’ll also teach your children the value of saving and managing finances at a young age. When you’re divorced and in debt, it can be hard to find spare cash for your kids. By helping them to set up their own savings account, not only will it help them start their own saving skills, but it will also help to take some of the burden off of you when they can access their own money. Once you feel your children are responsible enough, you can transfer complete control of the account over to them.
Saving for Retirement
Your child can actually start saving for retirement at a young age. As soon as he or she has some sort of earned income from a part-time job, you can establish a Roth IRA account in your child’s name. While it may seem premature to start a retirement account for a teenager, it’s a wise financial move. The younger your children are when they begin saving money for retirement, the more money they’ll have on hand when they finally stop working. If you are coming out of a divorce, you know how quickly your financial situation can turn and cause debt. Since most Americans aren’t saving nearly enough for retirement, entering adulthood with savings will provide your child with a tremendous financial advantage and the ability to get divorced or go to college without a significant financial burden. Still, your child and you should check with a trusted financial advisor before withdrawing funds from any retirement account.
Saving money for kids is one of the most important things you’ll do as a parent. Doing so will help ensure your kids have a secure financial future, have opportunities to receive a great education, and become financially literate adults. Additionally, saving money for your kids will also help your family and you make the most of your time together. Even if you and your partner are divorced, you can still start saving for your children’s future and teaching them smart money skills so they can avoid debt in the future. Consider the tips offered here, and start saving money for your kids today.