Benefits of Opening a Child Savings Account

As parents, we are always acting in our children’s best interest. This includes providing clothing, enough to eat, and a good education. However; one area that often gets overlooked is financial literacy. Opening a savings account for your child is a great way to ensure their financial security when they grow up. Below are a few benefits to opening a child savings account.

Small Deposits

Opening a child savings account while your child is still young means you don’t have to make large deposits starting out. If you’re consistent in depositing small amounts on a weekly or monthly basis, your child will have an established nest egg by the time they need it. When they're ready for college you could have thousands of dollars saved even if you were only able to make small deposits and didn't receive a very high interest rate.

Financial Literacy

Another benefit of establishing an account for your kids is that you are teaching them all about financial literacy.  Most kids aren’t taught financial education at school or at home.  This puts them at risk when they start college and become easy prey to credit card companies.  Unfortunately, this is a common financial problem for many young people.  They simply don't have the knowledge to handle credit and they quickly get in over their heads.

When your child is old enough, allow them to participate in the banking process. This includes showing them how a deposit is made, encouraging them to save a portion of any birthday or holiday money and put it in their savings account. I would also suggest showing them how bills are paid.

Tax Benefits

Depending on the type of savings account you select, you may find some excellent tax benefits. Sometimes, the funds you place in a child savings account aren’t taxed when you deposit them. Other accounts help you defer taxes when you deposit the funds and don’t charge you federal taxes when you use the money for your child’s education later. This means it’s money that you never pay taxes on.

Overall, you want to make sure your child has a healthy balance with financial habits. Teaching them to save is important but you don’t want them to grow up living in a mental state of scarcity or lack. You want them to understand that having their own cash to use if something unexpected comes up is true freedom but you don't want them always thinking about and preparing for the 'worst'. 

On the other hand, they also need to be able to spend money within reason. It’s the only way they will learn how to be savvy shoppers later in life. Teach them to understand that having money and nice things (to a degree)are okay.  It's a reward for working hard in your career! 

Helping your child achieve a secure financial future can start with something as simple as opening a saving account. Teach them strong financial habits from an early age and they will be far less likely to get in over their head when they are an adult.