How to save effectively for your childs future

February 7, 2008 – 9:32 pm

We all know when we have kids that we should be putting a bit aside for them for when they get older and want their first car, or a deposit for a house, or even just as a bit of a safety net when they want to go to college or university, but it’s quite hard to figure out what’s the best way of achieving this especially when a lot of the time we never seem to have any spare cash anyway.

If your child was born after 2002 then they will be given a voucher from the government worth £250 (£500 for low income families) just after they are born, and then another £250 (or £500 for lo income families again) when they turn 7. This has to be invested in a CTF (Child Trust Fund), which is a good place to set up your son or daughters savings as they are designed to be added to and can’t be touched by the child till they reach the age of 18. Also, the returns on them are totally tax free which means that they will grow more quickly than some other accounts. A good place to look is this site on best savings rates for CTF’s which gives details of lots of different CTF’s and what they will earn according to how much you can invest in them.

A really good idea, is to start when they are very young, and add a regular amount to their savings every week or month. If it’s done on a direct debit I think it becomes a lot easier as you don’t notice it missing so much, and you can’t ‘forget’ to put it in the account either. Also, encourage grandparents or other relatives to maybe do this for the child too, £5 a month doesn’t break the bank for most people, but over 18 years, it will add up to a reasonable sum of £1080 even without interest. (That’s not including the governments contribution either).

Obviously one of the main reasons you are saving money is so that your child will have a nice lump sum available to them when they turn 18. However, it’s a very good idea, particularly in this age of credit cards and loans, to instill in your child the desire to save for themselves, and an understanding of how it works and why it’s a good thing to do. Maybe think about adding an extra £1 or £2 to their weekly pocket money, but at the same time get them putting £1 or £2 away into a savings account. Perhaps use a regular child savings account for this, so that they can then split the money they’ve saved 50/50 between their CTF and buying something that they’ve saved up for. After all, in order to get them to understand why savings are a good idea, they will need to see a result from it just as you or I would.

Adding birthday and Christmas money to their account is another good way to increase the amount, suggest that the child put half of their Christmas or birthday money in there, as they get older, they will enjoy seeing that their account has lots of money in it, particularly as they develop an understanding of how money works and what it can be used for. Do bootsales to sell off old unwanted toys and clothes as they grow, and get the kids helping to sell them to make money, use it as a way of teaching them, explaining to them that the money will be going into their fund for when they grow up, half a dozen bootsales every summer will add a considerable amount to the fund, and after all it’s their finished with stuff you are recycling into money for their future.

You can invest up to £1,200 every year into a CTF, but if you’re lucky enough to be able to save more than that for your child, or you want them to have a bank account that they can learn with then this table of the best children’s savings accounts is a very useful tool.

If you invested £500 from the government, £5 a week from yourself, £1 a week from your child from the age of 5 and £200 a year from carboot sales and gifts from relatives, when they turn 18, your son or daughter will have £5180+ interest ready for them to use on a car, house, university, wedding, or whatever else they (and you) think suitable, and hopefully they will have learnt already about how to use that money wisely from your careful teachings.

By Vialdana

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