Saving Money for My Dream Home

Opening a custodial investment account for your child can be an excellent way to save for the future. In addition to putting aside money they can use for college or other long-term goals, you'll also empower them by creating an account they know they'll eventually control. However, another often overlooked advantage of these accounts is using them as a teaching tool.

A custodial investment account can be an excellent way to involve your child directly in their financial future and, as a result, provide a way for them to learn about finances and investments. If you want to give your child a leg-up on their peers, check out these three ways that a custodial account can help them get a head start on their financial literacy.

1. Involve Your Child In Savings Goals

If your child is old enough to earn their own money (or occasionally receive money as a gift), you can engage them directly in the savings process. Even if you make the bulk of the contributions to the account, you can still allow your child to throw in a few extra dollars here and there. They can then watch as their money grows over time, learning about the importance of long-term investing.

This approach also lets your child clearly understand that the account is theirs. Instead of simply telling them that you're putting aside money for their future, you can show them the account and allow them to chip in. Instead of having a vague understanding that you're creating an account in their name, they'll be able to enjoy a true sense of ownership over the funds available for their future.

2. Discuss Investment Strategies With Your Child

As the account custodian, you can make decisions about the investment strategies utilized by your child's account so long as you always make those decisions in their best interests. However, as your child gets older, you can also involve them in this process. You can show them the investment options available, discuss the pros and cons of each, and arrive at a decision together.

Not only does this process help teach your child about investing (and allow them to see the outcomes of those decisions), but it's also another way to help build a sense of ownership over the account. As your child nears your state's age of majority, they'll see how their decisions will affect the funds that will soon be available to them.

3. Work Together Towards Savings Goals

While custodial accounts often act as college funds, your child may have other goals in mind. Since custodial accounts will irrevocably pass to them at the age of majority, they will have full freedom and control over how to use that money. As a result, discussing your child's specific plans and goals with them as they age can be a good idea.

By treating this as a collaborative process, you can work with them to ensure their custodial account will contain the funds they need to meet their goals. This process will help instill good financial planning and savings habits in your child from a young age, helping them to better prepare for their financial future.

To learn more about custodial investment accounts, talk to a finance professional.