Personal Finance Advice

Plenty of parents open savings account for their kids, especially when relatives send checks instead of wrapped gifts whenever a holiday rolls around.  After all, unless you’re going to cash the check and have your kids pick out some toys, why not plop the money into an account and let the money build up some interest? This is especially true for parents who have very young children.  A three month old baby who receives a check in the mail from Grandma could probably care less about how it is spent.

There is nothing wrong with opening a savings account for your young children as long as you keep a few things in mind:

1.  This isn’t a college fund.  Don’t put money that you intend to use to fund your child’s education into a regular savings account.  You won’t be able to enjoy some of the tax benefits of an actual college savings account, and you probably won’t get as good an interest rate.

2.  Don’t open an account with fees.  Don’t watch the monetary gifts your relatives send wither away into nothing because of monthly fees.  Most banks and credit unions have savings accounts designed for kids that don’t require a very large minimum balance at all in order to stay feeless.  Be sure you know what that minimum balance is and stay above it.

3.  Use the account to teach your child about saving.  Don’t just covertly deposit checks into the account without ever telling your child what you’re doing.  Once your child becomes old enough to have a basic understanding of money, go ahead and explain the process.  Have her help you fill out deposit slips, or at least hand the check over the counter to the teller.  Some financial institutions give stickers or lollipops to kids making deposits, so it’s easy to make a trip to the bank or credit union a fun experience.

4.  Don’t use it for your own savings.  Keep your own savings separate from your child’s savings account.  There are too many tax implications if you start dumping piles of your own money in an account designated for your child.  You will want to make sure that your name is on the account so you can access it, but that doesn’t mean you should use it for your own purposes.

5.  You don’t have to have a savings account for your child.  There is no rule that says you have to have a savings account for your child in order to be a good parent.  As long as you are making an effort to save for your child’s education then there really is no huge need for a savings account when your child is really young and doesn’t really know the difference.  Unless the person sending the check specifies that the money is to go into a savings account you can cash it and buy your child something nice, like a toy or maybe even some diapers.

It would certainly be great for your child to turn 16 and have enough money in a savings account to go buy a car, but on the other hand you want to teach your child about earning money and systematic saving.  It’s up to you whether you save vigorously in a savings account for your child or not, but leave some room for your children to earn and save some money on their own.