Saving money for children
A lot of parents save money for their children, for example for a downpayment on their first apartment, or a memorable trip or a buffer for emergencies. Depending on how you save, your child will either automatically access the money when they turn 18 or you decide when they gain access. It doesn’t matter which one you choose, the important thing is that your child has learned the basics of personal finance and saving when they access the money.
Why is it a good idea to save money for your child?
Saving money for your children early on in their lives means that your money can take a long time to grow, which can greatly impact the amount you can save. Saving or investing often mean that you can add a percentage interest to your savings. For each year that passes, your savings or investment should accumulate more money than you started with at the beginning of the year. The following year your interest will be added to the money you originally put in, as well as added interest for the amount of interest you earned during the past year. This is called compound interest.
A lot of people have trouble grasping this, an example might help you follow!
You put £10,000 in a savings account with an annual interest rate of 10%.
After one year you will have £11,000 in your account.
£10, 000(The money you put in from the start) + £1000 (Interest for £10,000).
After two years you will have £12,100 in your account.
£11,000 (The money in your account at the end of year 1) + £1,100 (Interest for £11,000)
After 8 years you will have £21,400 in your account and have doubled the value of the £10,000 you originally put in, and all you’ve done is wait. After 18 years you will have over £55,500, almost six times the original amount.
This growth is the reason that Albert Einstein claimed that compound interest was the eighth wonder of the world and the most powerful force in the universe.
Saving for children and teaching children to save
A great advantage of saving for children is that it gives you a wonderful opportunity to start discussions about investments, savings and finance with your child. You can keep track of how your savings are growing together, wherever you invest you will most likely to be able to access graphs and other tools that display how your capital changes and grows. This is a great time to discuss why you are saving or investing in this way, what alternatives are out there and what you as an adult think that the money will be used for and what your child dreams and plans on using it for.
How do you do it?
There are many ways to save and invest money for your child’s future, here are a few basic tips:
Save each month
Saving on a monthly basis isn’t that hard on your wallet, and you increase the chance of pushing a large part of your savings to the bottom to then see how your savings rapidly increase.
If your goal is to save each money over the course of 18 years, that means that you will put money aside 216 times (18 years times 12 months), which means that each time you will think about what, how and if you have saved for your child. Save yourself the hassle with automatic transfers so you can focus on other things.
While the Gimi app is a great way to learn about money, and keep track of pocket money, it is not a means of saving money. Rather, it is a pocket money tracker.