Why save and invest?
By investing your child’s cash gifts, you are also building a nest egg for your child to claim when they’re of age, so they have a head start in their adult lives. This nest egg can give them extra financial security and even be used to fund future expenses such as their house, education or perhaps even as a portion of a business capital.
This is also an excellent way to teach your child the value of delaying gratification to reap long-term benefits. Consider letting your child witness the banking process, and regularly show them how much their money has grown in their accounts to encourage them to continue saving.
If you’d like to get started, here are some ways you can invest or save your child’s cash gifts.
1) Child savings account
A child savings account is a basic way for parents to grow their child’s money for the future. Often with no minimum age required to open an account and with no fall below fee, these accounts can be registered in your child’s name and allow for their money to grow over the years. When your child is of age, they can also obtain a bank card to withdraw cash or make payments with.
Some child savings accounts even offer additional perks targeted at children. For example, if the children deposit money into their account, they can earn points which can then be used to redeem items like vouchers and movie tickets. These perks could give them an incentive to start saving more.
2) Cash Management Accounts
Recently launched in the last two years, cash management accounts or portfolios are alternatives to savings accounts as they have higher interest rates, although understandably there is some risk. These accounts help you grow your child’s money via automatic low-risk investments.
Unlike savings accounts, however, most cash management accounts have a minimum age of 18, so you will have to make an account under your name first, before transferring the returns to your child when they’re older.
The plus point then is that since these accounts are not managed by banks, it does not support tap-to-pay, which means your child will be further discouraged from splurging this money the moment they get access to it.
As such, cash management accounts are best used as a long-term investment rather than one that can be used for daily expenses. If you have any spare cash, why not put it into these accounts alongside your child’s cash gifts for higher projected returns in the long term?
3) Making investments with your child
You could also put their cash gifts into investments in your name first to help them grow their money for the long term. Such investments include the Eastspring Investments Regular Investment Choice Fund.
Alternatively, your child’s cash gifts can also be used to fund their own investment endeavors.
It’s important to introduce investments to your child while they’re still young, and this includes giving them the opportunity to make their own investments when they’re ready.
To cultivate your child’s interest in investments, consider investing their cash gifts into low-risk assets on your child’s behalf, and help them regularly monitor its performance with child-friendly investment plans.