Investment plans for kids

Piggy banks are good for storing money but the money in a piggy bank doesn't teach a child about interest and inflation. They generally can't pay for college tuition either unless they pennies and nickels are invested very well. If you can teach a child to invest his or her allowance so (s)he can retire before you do, you may have done well in getting them started with investing. This article will discuss a number of different investing plans for kids.

The best time to start investing for a child and teaching a kid about investing is before they are born and during their childhood years. What's more if a child starts learning about investing at a young age they won't have to learn about it when they become adults and discover the real world for themselves. In fact financial planning may be just as important as musical training, physical education, and literacy. This article will present some of the savings and investing options for kids, and then follow up with summarizing commentary.

Child savings accounts

The ideal savings account for a child has no annual maintenance fee, a high interest rate, friendly and helpful customer service and online banking. As in the world of adult banking, some bank accounts are better than others in terms of free stuff for opening an account and free services. Credit Unions offer accounts that meet some of these requirements, otherwise separate accounts with joint ownership can be established by the parent. For example, if a financial institution offers an option to open a money market account opened under the same account number and/or owner as a checking and/or savings account, that money market account can be the child's account. Additionally, the child can learn more about the account by visiting websites such as this.

College savings plan

Eventually a child is going to turn 18 and either enter the workforce, stay at home for a little while longer or go off to some kind of post-secondary education program. For the latter there are '529' College savings plans and Coverdell Education Savings Account (ESA). Money used through these plans are completely tax deductible for parents and tax free for the future student when the money is used for education.

Toy and bicycle funds

A toy and bicycle fund can be a parent managed fund that grows with good behavior and discipline and declines with bad behavior and discipline which are things that also lead to wealth in the adult world. Kids can be updated about the amount in the fund and how much they need to do or receive as gifts to acquire additional gifts and toys. This type of fund will help give children a more constant awareness about the value of money.

Individual retirement accounts (IRA's)

It's never too early to save for retirement, however unnecessary or unrealistic it may be. In fact an annual IRA contribution started at birth at maximum contribution amounts could be worth over $120, 000 by age 29 or the same age young people may start thinking about retirement. If that isn't a head start what is?

A/B Trusts

A/B Trusts are a financial instrument that allow parent's with estates invest their money through a trust that may reduce estate taxes. With an A/B Trust, children inherit an estate with potential tax advantages due to use of the estate tax exemption. With an A/B Trust, the surviving spouse is entitled to a portion of the value of an estate and/or its income and the children of the spouse is entitled to another portion. Since the trust is separated this way, estate taxes are reduced and in some cases done away with thereby increasing the value inherited by the children.

Life insurance policies

Other savings vehicles for kids can include a life insurance policy with cash values that fluctuate and appreciate over time. The mere concept of life insurance during childhood is quite abstract and a real step in the direction of financial savvy if a child can grasp the concept. What's more a child life insurance policy can also benefit parents in terms of being reimbursed for costs associated with accidental injury not covered by health insurance and tax deductibility.

Investment plans for kids is ideally one part of a complete financial education program for children as investing does not include other important financial lessons such as budgeting, expensing, employment income and dealing with financial institutions. Nevertheless, investing plans for kids are beneficial to both parents and children and can prevent potential financial crises later in life. The investment products and ideas presented in this article are just a few of the several investment vehicles available, but do embody some of the more important types of investing i.e. toys, college, retirement, and tax savings.