Setting Up Your Baby Financially

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Setting Up Your Baby Financially

You are providing food, clothing, shelter, and love for your newborn. Why not also provide a good start to his or her financial life? Early exposure to this can teach them the importance of saving and investing. Here are some examples to consider:

Savings accounts just for your baby

Some parents like to set up a special savings or certificate account for their new baby and add to it periodically. Often, when the child is older, he or she can begin adding their allowance, babysitting money, or lawn-mowing earnings to it.

Inquire about other accounts for children at your bank, credit union, or other institution. Some of them offer special accounts and special incentives for opening and keeping an account.

College savings plans

The best time to start saving for your child’s education is before you discover you are going to be parents. Unless you have a wealthy aunt with money to spend, you should know about two big savings vehicles that the government created for you. You can save money tax-deferred in these special accounts just for educational costs:

• Coverdell education savings accounts. A Coverdell ESA lets you sock away tax-deferred money every year for college expenses.
• 529 plans. These plans can help you save for future expenses; they can help you contribute more than you could under a Coverdell.

Investments

The time-honored practice of buying a savings bond for Junior is still alive. But if you can do so, why not set up a stock or mutual fund account as well (or instead)? You can open up a custodial account in the child’s name and shelter a certain amount of its income from taxes.