Three Ways to Start Saving for Your Child’s Future

Savings and custodial accounts are easy and effective, and don’t overlook trust funds — they’re not just for the wealthy. The earlier you start, the better.

An astonished-looking toddler watches her smiling Dad work on his laptop at the kitchen counter.
(Image credit: Getty Images)

A parent’s responsibilities are seemingly never-ending and ever-growing. All parents want to make sure they’re teaching their children everything they need to know before they set out into the world on their own, but one thing that’s especially critical for parents to consider and prioritize is saving for their children’s future. $10,000 invested at age 25 will grow to $250,000 by age 60 at 10%. Meanwhile, $10,000 invested at birth will grow to $3 million by age 60. The first 25 years really matter!

Starting the process of saving early, and including your child in that process, works to make saving a habit for both you and your child. Children can start to understand money as young as the age of 5. Guiding them to understand how to earn, spend, save and invest their money at a young age instills a sense of financial responsibility and guides them to take more calculated risks, a skill that is critical beyond just money.

Working together to save can also ensure you’re prepared for emergencies, reduce stress and improve long-term security. And it's more important now than ever to start the process early as the cost of living continues to grow rapidly.

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The future is uncertain, but saving for your child can give a sense of relief and peace of mind. So, how do you get started saving money for your children? Here are three simple and effective options to consider when beginning to save for your child.

1. Start a savings account for your children.

If a savings account was the first thing to come to mind when considering saving for your children’s future, you’re not alone. A 2020 CNBC + Acorns Invest in You survey found that 45% of parents had set up some sort of savings account for their children to help with their financial future.

A savings account is often convenient, given it's how most parents started out saving themselves, and it can be conjoined with the bank that the parent uses. It's also an option that requires minimal effort, since all you have to do is store the money away.

Many banks also offer tax benefits and compound interest on certain savings accounts, offering low-risk avenues for growing funds in a stable way. These accounts also offer joint ownership between parent and child, allowing both you and your child to deposit and withdraw when authorized.

A savings account is a safe place for you and your child to stow their money and offers you opportunities to teach them about banking, money management and financial responsibility. It's especially motivating for kids if they learn that their money can grow with time if they let it go untouched.

2. Open a custodial account for your children.

For those looking to take a more active role in managing your children’s finances and saving for their future, a custodial account could be the right option for you. This type of account is set up and managed by parents on behalf of their children and can be transferred to the child once they reach legal adulthood.

Contributions made to the account cannot be revoked, and any adult can contribute to it. There are two types of custodial accounts available: Uniform Gifts to Minors Act (UGMA) accounts, which are limited to financial assets only, and Uniform Transfers to Minors Act (UTMA), accounts which can hold property, REITs and financial products.

Opening a custodial account is a simple process that requires only basic information about the child, such as their name, birthdate and Social Security number. Parents have full control over the account, including making deposits and selecting which assets to invest in.

Custodial accounts offer efficiency, flexibility and variety. They are easy to establish, have no income or contribution limits and do not incur penalties for early withdrawals. These accounts can hold any asset or investment offered through the financial institution.

Additionally, custodial accounts offer tax advantages, as earnings are typically taxed at the child's lower tax rate rather than the parent's rate.

3. Set up a trust fund for your children.

Many people mistakenly believe that trust funds are only for the ultrawealthy, but this isn’t true. A trust fund is a legal arrangement where assets are held by a third party for the benefit of a beneficiary. Although it may seem like trust funds are only for the elite, setting up a trust fund can be beneficial for families of all income levels, even those attending public schools.

Setting up a trust fund for your child can have many advantages. It can potentially reduce estate taxes and gift taxes in the future, keep your estate out of probate and protect loved ones with special needs. Additionally, a trust fund can offer protection from lawsuits or creditors.

While creating a trust fund may require more involvement than other savings options, finding the right trustee and having a desire to protect your children are all you need.

Investing in a trust fund as a means of saving for your children's future is a reliable way to achieve financial freedom and ensure a bright future for them. So, don't let the misconception that trust funds are only for the wealthy prevent you from exploring this option to secure your family's financial well-being.

Final thoughts and tips

While it may seem appealing to have complete control over your children's finances and set them up for success, it's crucial to remember that kids also need to learn financial independence. Parents shouldn’t hesitate to initiate conversations with their children about money management. If a child is taught how to manage their finances during their adolescent years, they will be much better equipped to handle financial challenges in adulthood.

Saving money can also teach other valuable life skills, such as prioritizing goals and responsibilities. Invstr's investment app for minors, Invstr Jr, is an exceptional tool to teach children how to save for the future. It goes beyond just saving tips for children. As a parent, you can put money into your children’s accounts for allowances, completing chores or goals or even just because you want to.

It also offers a custodial account where children can learn to invest with their parents, allowing you to supervise how your child saves and makes money at all stages of the process.

Invstr's vision is to provide financial education to everyone and achieve financial freedom for all. This app can educate children and prepare them for future financial situations and is a great companion tool for teaching kids financial responsibility and creating saving habits early on.


This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Kerim Derhalli
Founder and CEO, Invstr

Kerim Derhalli is the founder and CEO of Invstr, an award-winning financial education and investment app. Invstr’s mission is to empower everyone to take charge of their financial future. Invstr has been downloaded over 1,000,000 times by users in over 220 countries. Prior to Invstr, Derhalli built a 30-year career building, growing and managing multibillion-dollar businesses at leading financial institutions all around the world.