How Soon Should You Open A Savings Account For Your Kids

How Soon Should You Open a Savings Account for Your Kids?

Before you have kids, planning for them is easy. You have wild dreams about how you will open their college account, teach them how to save their money by the age of 2, and imagine that they will be financially independent by the time they’re 15. Of course, after you have your first kid, that all changes when you buy that first box of diapers and discover they are more expensive than you could have ever imagined. You have to plan and budget more than you realize, and you’re left wondering, “When should I open a savings account for my kid?” The answer depends on what the end goal of the account is.

College Savings

When saving for college, you want the most amount of time possible. Compounding interest is on your side, so if you can open the college savings account (most often a 529 College Savings Plan is used) as soon the baby is born, that would be ideal. Of course, it would also be ideal if you could dump $20,000 into this account right away and not worry about it for the next 18 years, but that most likely won’t happen. The bottom line is that a college savings account should be opened as soon as possible, and systematic deposits made into the account.

Emergency and Opportunity Savings

There are two kinds of savings involved here, but both involve storing up cash. An emergency fund savings is usually held at a bank or credit union, whereas opportunity money (for children, at least) is often held in a piggy bank.

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The best time to open these accounts will vary greatly depending on the developmental levels of the child. But a good rule of thumb is when the child can understand the value of money; they can understand the idea that storing up that money will allow them to make larger purchases. By the time they are in first grade, most children will have a good grasp of these concepts.

Long-Term Savings
There are different ways to help your children with long-term savings, and many depend on if your children will be putting money into savings, or if you will be making the contributions. One of the best gifts you can give to your children is a whole life insurance policy. Most companies will issue these any time after the child is 30 days old (assuming he or she is in good health). Choosing a financially strong company will ensure maximum growth.

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If you would rather utilize the stock market, an UGMA or an UTMA can be opened anytime after the child is born. For those who want to teach their children the benefits of saving for retirement, an IRA for your minor child can get them a jump-start on their retirement. As soon as they have a taxable income, they can open one of these accounts (with your help, of course). One way to inspire your children to save more is to match their contributions to their retirement accounts.

Wrapping it Up

Many people wonder when they should open a savings account for their child. And the real answer, for nearly all of the accounts, is as soon as they are born. There are some aspects that will come with time, such as the retirement account or teaching them the value of saving for bigger items, but the sooner you can open the account, the longer it will have to grow and compound.

Do you have children? How have you taught them to know and understand money?

Scott Sery is a contributing writer at When he’s not writing about personal finance, you can find him fishing, hunting, backpacking, caving, and rock climbing in Montana. Follow them on Twitter at @OneSmartDollar.