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How to Save Money for Kids?

Saving money is essential to meet the financial goals at different life stages. The need to save money for the kid’s future begins with parenthood. This is the most important and exciting life stage but is associated with many responsibilities. It is a responsibility that starts from the day the child is born and continues till he/she settles in life.

Planning for the child’s future needs at every stage is important. Some needs may be immediate like medical expenses, nutrition, etc. while some may spread over a few years like the child’s education. Both short-term as well as long-term needs have to be considered while drawing an investment plan for a secure future for children. ...Read More

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How to Save Money for Kids?

How to Save Money for Kids?

How to Save Money for Kids?
December 03, 2024

Table of Content

 

Essential Tips for Saving Money for Kids

Not all parents know enough about saving money for kids. Educating them will lead them in the right direction. Here are some tips about how to save money for kids.

  • Understand Your Child's Future Needs

Assessing your child’s future needs is imperative for effective financial planning for children. The plans for children are unique to each parent. You need to assess your child’s requirements before heading towards investment planning. Every need of your child should be categorised as short- or long-term, and the allocation should be made accordingly.

  • Open a Kids' Savings Account

Banks and financial institutions have provisions to open kids’ savings accounts operated by the parent or guardian. This will help induce the saving habit in your child. Instead of spending all the money received as a gift or pocket money, he/she will learn to put aside some in the account. Having a kitty of their own brings a sense of accomplishment to the child.

Saving money for kids will also serve purposes like meeting education and marriage expenses, helping them start a career, etc.

  • Start Saving Early to Reduce Future Investments

Delaying the investment process may enhance the outgo. It is recommended to start early so that you get enough time to take advantage of the compounding effect while minimising the monthly outgo.  

If you are saving for kids’ education and plan to invest in a child’s insurance policy when the child is 5 to 6 years old or even as soon as he/she is born, the policy can be for a longer duration which means a lower premium. Similarly, you get enough time to grow your money and create a sufficient corpus. Early investment for children is a beneficial strategy to use for how to save money for kids.

  • Saving for Your Child's Education

With even kindergarten fees mounting higher each year, you should necessarily plan for every stage of your child’s education. Initially, start saving in a zero balance savings account to provide for schooling. Parents who understand the importance of child education plan are compelled to invest in long-term child plans like a child insurance plan or unit-linked investment plans for college education and higher studies.

However, early investment for children i.e., as early as the day they are born will ensure that every need of your child is taken care of without financial crisis even when you are not around.

Why is it Important to Save Money for Kids?

The biggest reward you can give as parents to your children is financial stability. Saving for their future needs makes them financially secure and enables them to fulfil their goals even when you are not around. With the cost of education reaching new heights every day, funding their education is the most burdensome.

Savings for higher education should top your long-term financial goals. Apart from this, marriage savings for kids, helping them build their careers, etc. are some future goals that need focus.

But how to save money for kids? Start a child savings plan wherein you make small contributions regularly to build a corpus to fund either their higher education or marriage expenses. Once you have clarity about your child’s academic interest, allocate your funds to a child investment plan for the long term and benefit from the compounding effect to grow your money manifolds. Proactively saving ensures that your child’s future is taken care of by beating all odds.

When is the right time to start saving for your kids?

A fair knowledge about money saving tips for kids is not adequate for the investment journey. You should also know when to start to maximise the returns. The day you attain parenthood your responsibilities increase in leaps and bounds. Starting from striving to provide the best nutrition to providing the best education to shape their future, it is a huge responsibility and needs money.  Saving every surplus dime for their future needs is a stress-free way to fulfil the goals planned for your child.

Starting from the day they are born gives you ample time to grow your money. Early investment will be easy on your pocket as the investment can be spread over years. You can create a diverse portfolio depending on the requirements for every stage of their life. Diversification also gives you the flexibility to change the plans as per your child’s changing plans for future studies.

Besides savings for higher education, marriage, etc., health savings for kids are equally important. With a medical plan in place, you will not have to compromise on treatment quality in case of any medical emergency.  

What are the Benefits of Starting to Save Early for Kids?

How to save money for kids and why to start early should not be the only angles to convert your parenthood responsibility to convenience. You should also understand the benefits of starting to save early for kids before jumping into investment decisions.

Early saving benefits abound. The primary benefit is it prepares you to handle growing inflation and future expenses like healthcare, education, marriage, etc. Beginning to save from the day the child is born gives space for long-term financial planning to derive the compounding benefits. Also, it will be easy on your pocket as it allows smaller and more consistent contributions to grow your money substantially over time.

Early planning provides the option to change your investment plans according to changing goals and market and monetary conditions. A disciplined approach is among the many money saving tips for kids that ensure your children can pursue their dreams and passions without facing any monetary constraints. Long-term child plans like a child insurance plan, SIP, etc., are ideal for long-term investment. These plans help outpace inflation and combat the rising costs effectively.

Summary

Parenthood brings in a lot of additional responsibilities and enhances the need to save money. Expenses start mounting from the day the bundle of joy enters your life. The upbringing of the child will be less stressful if the finances are managed well. How to save money for kids within the resources available is what troubles most parents.

With so many short and long-term investment options and tips for saving money for kids available, financial planning for your child’s future will not be a task at all. Evaluate the specific needs of your child, deliberate on the money-saving tips, and start the investment engine today.

FAQs on How to Save Money for Kids

Q. What is the best way to save money as a kid?

The best way to save money as a kid is to save a part of the allowance received instead of spending the entire amount, looking for used items like sports equipment, books, etc. instead of investing in a new one, opening a savings account, and avoiding eating out frequently.

Q. What is the best savings account for kids?

The best savings accounts for the short-term needs of kids are zero-balance savings accounts, fixed deposits, etc. These accounts offer high liquidity, though the returns are not that attractive. For long-term needs like higher education, marriage etc., child insurance plans, ULIPs, etc., that have both life cover as well as investment components are ideal to safeguard the future of your child.

Q. How do I start planning for my child?

To start planning for your child, evaluate the specific needs of your child at different growing stages. Begin with a zero-balance savings account and start parking a certain amount every month in the account to meet short-term needs. For long-term needs like college fees, expenses of higher education, marriage expenses, etc., start investing early in long-term plans to maximise the returns.

Q. Why is it important to save money for kids?

It is important to save money for kids to cater to their needs at different growing stage without facing funds constraints. Starting early allows you to stay invested for longer periods and avail the benefit of compounding to maximise returns. The returns should be high enough to beat inflation and match up to the rising cost.

Q. How does inflation and rising costs impact saving for kids?

Inflation and rising costs decrease the value of savings. The savings may not be enough to meet the future expenses of children like education and marriage expenses if not planned properly. Investing in high-yield options with a compounding effect will help minimise the impact of inflation on savings.

References:

1. https://cleartax.in/s/5-rules-to-keep-your-childs-future-financially-secure

2 .https://economictimes.indiatimes.com/markets/stocks/news/childrens-day-9-ideas-to-start-investing-for-your-childs-future/articleshow/105201118.cms?from=mdr

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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This material has been prepared for information purposes only, should not be relied on for financial advice. You should consult your own financial consultant for any financial matters.

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