Everybody knows that having a child costs a pretty penny. In fact, just raising a child through age 17 can cost well over £180,000 — and that’s not including expenses such as cars, university and weddings.
Obviously, the earlier you start saving money, the better off you will stand financially once your bundle of joy arrives. Investing wisely matters just as much as developing good savings habits. The following six tips on how to start saving money for your children will help you maintain financial stability while bringing up baby.
Harness eBay and second hand sales
Babies grow incredibly quickly, which means you’re constantly buying new clothing and toys just to keep up with their growth. The good news? Infants and young children care little about designer labels or the latest fashions.
Fortunately, second hand sales offer a veritable cornucopia of baby and children’s items for mere pennies. In addition, online trading sites such as eBay, as well as speciality baby swap sites, offer kiddie clothing bargains that don’t require leaving your house.
The best part? There’s no reason you can’t at least get some return on your baby clothing collection utilizing these methods as well. To get the most out of selling your gently used but outgrown baby clothes, time the sale of items like retailers do. Start selling items like shorts and bathing suits in April when parents prep for summer, and items like winter jackets in October. Retailers remain experts in sales timings, so plan to list your baby items for sale at the same time similar items hit your local store shelves.
Invest in a Child Savings Plan
When it comes to saving money for your children, children’s savings plans often offer far better interest rates than the accounts available to adults to encourage parents to save more for their child’s future. One such children’s savings plan offers an interest rate of 4.5 percent, over twice the interest paid for a similar adult account. Parents of children younger than age 18 can benefit from these plans.
U.K. residents can establish these types of savings plans for their children through just about any bank or building association. Some institutions allow parents to open an account with as little as £1. Parents can establish monthly contributions to the children’s saving account or invest a lump sum.
Children’s savings plans vary widely when it comes to account access as well. While all children’s savings accounts permit parents to withdraw funds if necessary, some require a trip to the local branch for a withdrawal while others permit online and phone money transfers. Parents who struggle with impulse control when shopping should stick to a plan that requires a branch visit, as this reduces the temptation to use their child’s future funds for that Prada purse they simply must have.
Check with the Boss
Often, people fail to take advantage of all the benefits connected with their employment. Avoid this costly mistake when planning for your baby’s future. Parents in the U.K. who require a bit of extra time with their newborns can take advantage of the required 5.6 weeks mandatory holiday allowance.
In addition to traditional benefits, check with your employer regarding flexible work arrangements. As technology advances, more employers offer telecommuting options that allow new parents to bond with baby while still getting work done.
Other employers offer benefits such as additional paid sick days when employees need time off to care for an ill child. Others provide on-site child care programs where parents can check in on their child during work breaks. Even if your employer currently offers few benefits such as flextime, suggesting them to HR may lead your employer to adopt more family-friendly policies.
Make Saving Emotional
People tend to stick to any type of routine that has an emotional component attached to it, and savings routines are no exception. When it comes to saving money for your children, it remains a psychological principle that parents contribute more to accounts labelled for their child’s wedding or college than one simply labelled “savings.”
Many banks put no limits on the number of savings accounts customers may open, so opening a separate account just for junior helps parents prioritize savings goals. Automating savings by setting up direct deposits to be divided between accounts helps savings grow faster. Finally, avoid linking a debit card to savings accounts meant for children, as the extra effort required in making a run to the bank helps prevent frivolous withdrawals.
Consider a Junior ISA
Parents who wish to teach their children solid investment skills can open a Stock and Shares Junior ISA. A Junior ISA provides parents with a long-term savings vehicle that pays dividends at a rate sufficient to adjust for inflation.
Junior ISAs offer parents the opportunity to diversify their child’s investment portfolio by investing in a variety of higher- and lower-risk stocks, equity funds and bonds. As children grow and mature, parents can involve them in making investment decisions about their portfolio so they develop financial literacy skills.
Invest While Young
This should go without saying, but the sooner parents begin implementing saving and investing plans for their children, the better their child’s overall financial future will look.
Research indicates that children even as young as 3 start forming financial habits based upon their parents’ behaviour. Parents should begin age-appropriate savings goals from the time children learn to speak. Teaching children that every Friday they devote a small amount such as £1 or £2 to savings builds solid habits for later in life.
Older children benefit from investing lessons. Assuming they’ve amassed sufficient money, allow older kids to participate in diversifying their savings by investing in mutual funds or CDs. Playing a stock market game where children select certain stocks to follow the ups and downs of can introduce them to the market in a safe manner that risks no money.
Putting It All Together
Building a solid financial foundation by saving money for your children involves a bit of work, but the payoff makes the effort well worth it. By practicing solid financial habits themselves and by introducing savings concepts at a young age, parents grow their own bottom lines while teaching their children important lessons regarding money management.
Disclaimer: This post is sponsored by PSECU, a Pennsylvania-based credit union.