Why You Should Invest in Your Child’s Future Now

Written By Jeff Hindenach
Last updated September 24, 2021

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October 31, 2016

Simple. Thrifty. Living.

Today’s economy isn’t as bleak as it once was, but rising prices and a tough job market still make it difficult for many young people to make a good living, or even go to college. That’s why parents should start investing in their child’s future while the child is still young.

With many options and savings plans available for college, early investing can yield big results in later years. A child who already has ample savings when it is time to apply to colleges will have a better idea of which colleges they can afford. Additionally, college savings means the child won’t have to worry about student loans, which are a leading cause of debt among college graduates.

It is also beneficial to help your child start a small nest egg, because nobody knows how tough the job market or expensive the housing market will be in the future. Before making any investment decision, you should know what each option entails in order to make the wisest decision for your child’s future.

Savings Accounts

Pretty simple and straightforward, savings accounts are an easy way to give your child a sizable amount of cash in later years. However, interest rates are currently quite low. Therefore, unless you contribute a significant amount on a steady basis, the cash might not grow as you expect it to.

A Roth IRA is a better option than a standard savings account, because earnings are protected and the account earns significantly more than bank interest. However, Roth IRA really can’t be started until the child begins working. If you want to invest in your child’s future earlier, you’ll want to decide between a 529 college plan or UGMA and UTMA accounts.

The most common college savings plan for minors, the 529 college plan enables you save for your child through a variety of investments without having to pay tax penalties. However, the funds must be used for college in order to avoid paying those taxes or penalties. You can sign up for a 529 college plan like Upromise to start saving.

These plans are wise investments if you want to save for your children, but aren’t sure if they will go to college. Both of these plans offer some tax-saving advantages, and provide no restrictions on how the money may be spent. Once the child reaches the beneficiary age — depending upon the state, either 18 or 21 — the money is theirs.

Regardless of which type of plan you choose, making any sort of investment in your child’s future while they are young is always a wise choice.

About the Author

Jeff Hindenach

Jeff Hindenach is the co-founder of Simple. Thrifty. Living. He graduated from Bowling Green State University with a Bachelor's Degree in Journalism. He has a long history of financial journalism, with a background writing for newspapers such as the San Jose Mercury News and San Francisco Examiner, as well as writing on personal finance for The Huffington Post, New York Times, Business Insider, CNBC, Newsday and The Street. He believes in giving readers the tools they need to get out of debt.

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