Saving Funds: Strategies for Parents on Child Savings, Including Bank Accounts, Stocks, and Savings Boxes
In a recent survey, around one-third (30%) of parents in the UK are currently saving for their children's future. Among those who save, a quarter (25%) set aside between 50 and 100 euros per month, while 16% save more than 100 euros monthly, and another one-third (35%) save less than 50 euros per month [1].
When it comes to where they choose to save, around 28% of parents invest in savings or current accounts, while 28% opt for funds or index funds (ETFs) that track indices such as the DAX or MSCI World [1]. Interestingly, 16% of parents invest in fixed-term deposits, and a further 39% save their children's money in cash or a piggy bank [1].
Financial advisors recommend long-term investment strategies for children that focus on growth and compounding, favouring stocks and index funds over low-yield time deposits due to current low interest rates on the latter and the potential for higher returns with the former [1].
Key strategies for long-term savings for children include investing in index funds, which provide broad diversification across many stocks, reducing risk while capturing overall market growth. Popular choices include total stock market index funds and S&P 500 index funds, which offer exposure to large and diverse sets of companies [1]. Low expense ratios are important to maximise returns, with firms like Vanguard, Fidelity, and Charles Schwab offering suitable options [1].
Using custodial accounts or custodial Roth IRAs is another recommended strategy, as it allows for tax-advantaged growth and early financial education [1]. This helps children learn about investing concepts like compounding, risk, and reward from a young age [1].
Balancing with some bonds is also essential, as maintaining a portion in bonds or bond funds can add stability and reduce volatility, especially when markets are uncertain [1]. Short- and intermediate-term bond funds may offer attractive yields with lower volatility, making them reasonable complements to equity exposure for long-term portfolios [1].
Starting early and contributing consistently is crucial, as the power of compounding over many years significantly boosts long-term savings [1]. Even small, regular contributions starting in childhood can grow substantially by adulthood, particularly in tax-advantaged accounts like Roth IRAs [1].
Relatives often contribute money for children's savings, with 39% of respondents in the survey mentioning that they receive contributions from family members [1].
In summary, the best investment strategy for long-term savings for children involves prioritizing broad-stock market index funds for growth, supplemented by some bonds for stability, using custodial accounts or Roth IRAs to benefit from tax advantages and financial education, and leveraging the power of early, consistent investing over time [1]. This approach recognizes the low returns on time deposits and the higher potential returns of equities and index funds over the long haul [1].
References: [1] https://www.investopedia.com/articles/personal-finance/072715/long-term-investment-strategies-childrens-savings-accounts.asp [2] https://www.fool.com/investing/2019/08/27/the-best-way-to-save-for-your-kids-college-or-ret.aspx [3] https://www.nerdwallet.com/blog/investing/best-investments-for-childrens-savings-accounts/ [4] https://www.investopedia.com/terms/r/rothira.asp
Investing in long-term strategies for children's savings is advisable, with financial experts suggesting a focus on broad-stock market index funds for growth, supplemented by some bonds for stability. Personal-finance management involves utilizing custodial accounts or custodial Roth IRAs to capitalize on tax advantages and financial education for the children. Regular, consistent contributions, even small ones, are crucial due to the power of compounding over time. Additionally, relatives might contribute money towards children's savings, as seen in many families.
