I wish I would have known sooner the major importance of building savings at a young age. After spending years of letting our kids blow their birthday money on shopping sprees, we finally decided to start being smart with their savings. Not many parents are aware of savings accounts for kids beyond what their local bank has to offer. Encouraging your kids to save at a young age is critical, there is no way around it. Building any kind of savings for them is a smart move, but you could be leaving money on the table. So what savings accounts should you look into for your kids? Let’s talk about how to start a successful college fund for your child on a small budget.
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Talk to kids about saving
Before you start saving money for them, be sure you are talking to your children about money and the importance of saving.
Many children grow up only hearing about financial struggles. Things like, “We can’t afford that.” or “We don’t have any money.” Even though you may be financially struggling, it’s super important that you encourage your children to grow up with a healthy money mindset.
Remind them of how putting money into savings accounts is beneficial for them. If they want to be “rich” they can only do that by not spending money.
The importance of saving at a young age
Let’s face it, starting anything earlier in life usually gives you an advantage later. Start exercising at a young age and you’re more likely to experience better physical fitness into your golden years. The same goes for building savings.
Take a look at this Dave Ramsey chart that shows the importance of building savings at a young age.
In this scenario, you’ll see two brother’s savings plans. The first brother, Ben, saved $2,000 for 8 years from the age of 19 to the age of 26. His brother Arthur then caught on to the benefits of saving and opened a savings account for himself. Arthur then began to save $2,000 a year.
While Ben stopped saving, Arthur continued saving from the age of 27 to the age of 65. When they both hit retirement, Ben still had more money than Arthur even though Arthur had saved his money for 30 decades longer than his brother.
Why this is important
This simple chart shows the importance of building savings at a young age. If you as a parent are able to help your child save money for only the first few years of life, the lasting effects can go all the way into their retirement if you are smart about how you do it.
There is no doubt that contributing to a Savings Builder account with CIT Bank for your children is the simplest way to get them earning interest on their savings at a young age. And you only need $100 to open one!
While most regular banks only offer around a .05% return on interest, CITbank’sSavings Builder offers a high return of 2.45% when you contribute $100 per month!
When you are first starting to save for your children, a basic account with a lower interest rate will work just fine. When you are ready to open a high yield savings account, be sure you have at least $100 saved up before you begin the process.
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How to start saving at different ages
Saving will look different depending on your child’s age. Here are a few ideas on how you can begin helping your children start to save no matter what their age.
Birth – 5
Take advantage of these early years before children start to really crave toys and presents. Invest money wisely.
Ask for money instead of birthday gifts
Save any financial gifts they are given
Set up automatic withdrawals each month from your account to go into their savings
Baby years savings plan:
Save $100 per month for your child.
After 5 years they will have a savings of $3,000
Put this money into a Savings Builder Accountand continue contributing until they are 18. This account gives you a 2.45% interest rate for only $100 per month!
By the time your child graduates, they will have over $27,000 saved
Age 5-10
These are the years when your children can start being more hands-on with their money and their savings. Be sure to include them in it and let them know if you are helping them save as well. Here are some ideas on how they can start being more involved.
Contribute 30% of their chore money to their Savings Builder
Put half of their birthday and Christmas money into savings
Age 5-10 savings plan
Continue contributing $100 per month to savings
Encourage children to contribute an additional average of $20 per month
This will give your child around an additional $4,000 by the time they graduate
Age 10-18
Now are the years when children can start working to find their own ways to make money beyond chores and birthdays. Encouraging them to find ways to earn money through dog walking, lawn mowing or babysitting is a great way to instill a strong work ethic at a young age.
Start looking for ways to make money
Look for the first job
Start managing their own money beyond savings
Age 10-18 savings plan
Continue contributing $100 per month to savings
Continue to contribute extra $20 from chores and/or birthday money
Begin contributing 10% of paychecks into savings
No matter what, any amount of savings that you can do for your child is going to be beneficial. Make sure to take advantage of great accounts like the Savings Builderin order to get the best interest rate possible!
Ideally, you should save at least $250 per month if you anticipate your child attending an in-state college (four years, public), $450 per month for an out-of-state public four-year college, and $550 per month for a private non-profit four-year college, from birth to college enrollment.
Ideally, you should save at least $250 per month if you anticipate your child attending an in-state college (four years, public), $450 per month for an out-of-state public four-year college, and $550 per month for a private non-profit four-year college, from birth to college enrollment.
For California's ScholarShare 529 plan, the minimum initial deposit is $25. Subsequent contributions, including automatic contributions, must be at least $25. The minimum payroll deduction amount is $15 per pay period.
By superfunding your 529 plan with a lump-sum contribution of $50,000, in 18 years when your child is ready to enter college, your account balance will have increased to $120,331.
Eligible public school students and English learners in 1st through 12th grade, as defined by the Local Control Funding Formula, will receive $500. An additional $500 will be deposited in their CalKIDS account if they are also identified as foster youth and $500 if they are homeless.
If your child decides not to attend college, the funds can be used at any eligible educational institution offering higher education beyond high school, including some overseas, trade or vocational schools eligible to participate in a student aid program run by the U.S. Department of Education.
You can use a 529 plan to pay for qualified room and board expenses like rent, other housing costs, and meal plans. This applies to on-campus and off-campus room and board as long as you incurred the costs while the beneficiary was enrolled at school.
Beginning in 2024, you can transfer unused funds in a 529 plan to a Roth IRA for the same beneficiary, without tax or penalties. These rollovers are subject to several rules and limits: Transfers have a lifetime maximum of $35,000 per beneficiary. The 529 plan must have existed for at least 15 years.
Nationwide, 529 Plan savings totaled $450.5 billion in June 2023 for an average account balance of $27,741. The average account balance in mid-2023 was 9.50% lower than the all-time high average balance of $30,652 in 2021.
A Roth IRA for a child needs to be started and managed by a parent or other adult as a custodial account. The child needs a Social Security or other tax identification number, plus earned income. The Roth IRA stays a custodial account until the child reaches the age of majority, which is 18 in most states.
While not the flashiest gifts, I bonds are a safe investment designed to keep pace with inflation. They grow for decades and can provide kids with a source of cash as they transition to adulthood.
529 plan investments grow on a tax-deferred basis, and distributions are tax-free when used to pay for qualified education expenses, including college tuition and fees, books and supplies, some room and board costs, up to $10,000 in K-12 tuition per year, and up to $10,000 in student loan repayment per beneficiary and ...
If your child decides not to attend college, the funds can be used at any eligible educational institution offering higher education beyond high school, including some overseas, trade or vocational schools eligible to participate in a student aid program run by the U.S. Department of Education.
Tax Limitations: Custodial accounts have some tax advantages (and no penalties), but 529 plans offer more tax savings overall. Gifts Are Irrevocable: There are no takebacks—even if you need the money or want other children to share in the account assets.
While you can't set up a 529 plan in the name of an unborn child, you can name yourself the beneficiary until the child is born and has their own Social Security number. A 529 savings account can be a great way to fund future education needs even before college since it can also be used for K through 12 education.
Introduction: My name is Melvina Ondricka, I am a helpful, fancy, friendly, innocent, outstanding, courageous, thoughtful person who loves writing and wants to share my knowledge and understanding with you.
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