Even before your little one is born, you start to worry about her future. The expenses that children have — especially large ones like college — can quickly add up, so it’s smart to look into investment plans for kids. When you invest small amounts regularly, those investments can grow into a much larger amount of money for your child’s future.
Types
A traditional savings account or CD may pay only a small percentage in interest, but your money is safe and it will grow slightly. These options may be smart if you want your child to invest her own money. For bigger investments, look into a 529 plan or a Coverdell Education Savings Account. These help you to save money for your child’s education by investing your money in stocks, mutual funds, CDs and bonds. The Uniform Gifts to Minors Act allows you to give each child up to $11,000 per year into a UGMA/UTMA custodial account.
Significance
Children will have a lot of expenses when they become older, whether they’re going to college or setting up in an apartment on their own. If you wait until this time to give them money, you may not have much to give. If you start putting money away now — even a small amount of money — you can have a big nest egg to get them started in life. The money in these investment plans often grows over time, which means that you have even more money to give than you put into the plan.
How Much
Savingforcollege.com suggests that in order to cover all the costs for your newborn to go to college, you’d need to save about $432 per month if you expect your child to go to a public university and $1,269 per month if you’ve got your sights set on the Ivy League. Of course, these figures may be out of reach for the typical family, so you need to look at your own budget to determine how much you can save. Even a small amount, like $100 per month, can help cover the costs of your child’s future.
Considerations
You can never predict what type of person your child will be. She can only use the money in 529 plans and the Coverdell ESA for education expenses, so if college isn’t her thing, it may be difficult to get the full benefits of the money that you’ve saved. If you’re investing your money in a UGMA/UTMA custodial account, you also have to accept the fact that once she turns 18, the money officially becomes hers. You may not agree with the way that she choose to spend this money.
Warning
Investment plans for kids, like all investment plans, are tied to the market. Though there are safe investment choices that you can make within these plans, there is always a chance that you can lose money. These are meant as a long-term investment strategy.
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