Kids are expensive. Childcare costs are unsurprisingly high and make up for half of the total amount that parents spend on their kids. But even once they turn 18, there are many costs a parent may wish to cover or contribute towards.
Saving for your child can help them prepare for the future. Even small amounts tucked away can build up a substantial nest egg, so the sooner you start putting money away for your child, the better.
Getting into the habit of saving can also help structure your family’s financial goals and your retirement. It’s time to go beyond the piggy bank.
Here are some reasons you should start saving for your child’s future -
The rising cost of education
With universities calling for a tuition fee rise, it is advisable to start saving as early as possible. You’ll have around 11 years to save for your child’s secondary education and 18 for their higher education.
A UK undergraduate degree can cost around £9,250 per year and up to a total of £27,750 for three years - and this does not include the cost of accommodation, food and transport. While education loans are a saviour for parents, the high-interest rates are a drawback and can put a lot of stress on your child.
Here are some of the common ways you can start saving for your child -
JISAs - They are long-term tax-free savings accounts for children that allow contributions of up to an annual limit of £9000 (Tax year - 2022/23). There are two types of JISAs - cash ISAs and Stocks and Shares ISA. To know more about these, check out our article here.
Children’s savings accounts - They are pretty similar to adult savings accounts and offer better interest rates. You can start an account with as little as £1 for any child aged up to 18.
Even with high-interest rates, student loans are one of the easiest ways to borrow money. They can cover both tuition fees and living expenses. If you realise that you won’t be able to save enough money for your child’s education and want to go with this option - check out the rules for student loans on this website.
Financial freedom for you and your kids
A ready savings pot when your child turns 18 can save you from significant financial stress and responsibilities. It can also let you focus on saving for retirement and achieving your goals.
While you may keep savings for a rainy day, an effective plan can also give your child more freedom to choose how to spend their money. For example, they can either invest in a hobby, put the money in an interest-bearing account or buy into the brands they love by investing in the stock market.
The savings you start now can help your child achieve financial independence, depending on how they decide to use it. But with financial freedom comes the need to teach your child how to spend and save wisely.
Financial education for your kids
A study by T. Rowe Price showed that nearly half of parents miss opportunities to talk to their kids about money and finances. And a quarter of them are very or highly reluctant to discuss financial topics with their children.
Starting savings for your kids can also help them understand finances and money management, which can do wonders and pay off in the long run. An example is Money Missions by GoHenry, a money management app for kids. Money Missions are interactive lessons in the GoHenry app aiming to boost financial literacy in kids.
A boost for important life decisions
Early savings can provide a welcome boost to your children when they need it for significant life decisions such as buying a house, getting married, buying a car or even for a rainy day.
The big milestones are what pushes us to save more. It doesn’t matter what your savings goal is; what matters is that that same money will give them more options and opportunities to choose from.
The magic of compounding works with having time on your side. And time is a huge advantage when it comes to children’s savings – the longer your children’s savings are in place, the bigger they will get.
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