family budgeting

How to Save $10,000 by Your Child’s 18th Birthday

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Do you want to save money for your child to give them a financial boost when they reach adulthood? Here’s how you can save $10,000 by the time they reach 18.

how to save money for your child

Maybe you want to help pay for your child’s university fees. Or maybe help buy their first car. Maybe you want to contribute to their first trip. Or help with a house deposit.

But does the thought of saving money to give to your child on top of paying for all the day to day expenses now seems impossible?

We all want to give our children a good start in life, and that includes when they are just starting out as adults.

But 18 years is a long way away, and that electricity bill, well, it needs to be paid next week.

The good news is, we can take advantage of that distance of time.

By starting early and saving a little bit each week, time (and a little compounding interest) can add up to a nice surprise on your child’s 18th birthday.

Here’s a method for saving $10,000 by the time your child turns 18.

How the $10,000 In 18 Years Savings Plan Works

The key to saving money is consistency over time. Small savings, over time, add up.

The $10,000 plan is about putting money aside for your child’s future every week.

The weekly savings amounts start small; just $1 a week when your child is firstborn. This is a time when money is often short and the list of is bills long. Which is why the savings plan starts very small.

Then you continue saving $1 a week for your child’s first two years. That adds up to $104 by the time they turn 2. It doesn’t seem like much but $1 a week consistently is easier than trying to come up with big amounts in a short period of time.

And there are still 16 years to go.

After the first two years, the savings amount you put aside for your child’s future increases to match your child’s age.

So when your child is 2, you save $2 each week. An extra dollar.

One year. One more dollar.

By the time your child is 17 years old, you will be putting away $17 each week.

Why This Savings Plan Can Work

For the average family, income tends to increase as the family gets older; a stay-at-home parent might return to work or one or both partners may get promoted or increase skills and therefore wages over the years.

Also, expenses often decrease as the mortgage decreases. While the teenage years can be expensive, as young teenagers get a job and start earning their own money, you hopefully pay less.

That means each year it can be easier to put aside an extra $1 a week for your child’s future.

Add in Compounding Interest

By the end of the 18 years, you will have saved a little over $8,000. But thanks to compounding interest, you can make it over the $10,000 mark.

But wait, interest rates are terrible at the moment, right!

They won’t always be terrible, not over an 18-year period.

When my son was born interest rates were as high as 6% (he’s now nearly 10). And while the best interest rate at the moment is a dismal 1-2%, they will rise again by the time he turns 18.

So the following calculations are based on the assumption that you will be earning an average 4% per annum on your savings.

Of course, over the 18 years, sometimes your interest rate will be higher, and sometimes it will be lower. You can mitigate the interest loss somewhat by shopping around every year or two for the best online savings account with the highest interest and no fees.

Another option, if you have a mortgage with a redraw facility, is to put your extra savings onto your mortgage, which has a higher interest rate. Instead of earning interest, you are saving interest.

Here’s a year by year break down of how the savings plan might work assuming an average of 4% interest:

Savings Table

Saving $10,000 in 18 Years Without Relying on Interest

If you want to save $10,000 in 18 years without relying on interest, just use the table to work out how much you need to save each year.

For example, instead of saving $1 each week in the first two years, it would be $1.05 ($108 / 104 weeks = $1.05 rounded).

At $1.05 you will have saved $109.20 by the time your child turns 2.

And when your child is 2, you would be saving $2.10 instead of $2, which would bring you to $218.40 by the time they turn 3 ($218 – 109.20 = 108.80 / 52 weeks = $2.10 rounded).

In the year they are 3, you put aside $3.25 (rounded up) and so on.

In the years when you are earning 4% interest or higher, you can adjust how much you save each week downward, to account for the interest earned on your savings.

If you have children already but haven’t started saving yet, you can use the yearly cumulative total to ‘catch up’ if you want to.

After having a discussion about the pros and cons of saving money for our children’s future, we decided to start this savings plan for both our kids.

We won’t be telling our kids that we’re saving a little something for them. We want them to learn independence; how to work hard and earn and save their own money. We don’t want them to think that there’s a handout waiting for them when they turn 18, so they don’t have to learn to be financially savvy.

But it would be nice to give them a bit of a surprise step up when they reach adulthood.

What do you think about saving money to give to your children? Are you saving a little something for when your children become adults? How does your saving plan work?

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7 Comments

  1. My parents did this for me and my brother (the eldest two) but dropped the ball with the third!

    We didn’t get it til we were 21, which I think was a better age in some regards (I’d truly learnt to work and pay for my pleasure by then!) I believe they did it through AMP and it was offered to them in the hospital when we were born!

    Interestingly, they found the cash to offer the third child on his milestone birthday.

    Two of three children used it for extended overseas living/travelling, and the other hasn’t touched it, and kept it as a safety net! He has, however leveraged the interest earnt, and used it to buy a car… hardly the best investment, but he didn’t use the gift money essentially, so it seems somewhat prudent!

    1. Age 21 is a good idea, we were tossing up between 18 and 21…but we’ve got a few years to decide yet :)

      Did you travel? Where did you travel to? I wish I had traveled a little bit before we had mortgage and children.

      1. I spent mine on living in France in 2006, went to uni and did a year of my degree. My youngest brother is spending 9 months or so in South America, teaching and travelling and seeing the world cup.

        We are spoilt, but I agree, it’s lovely to do it ‘alone’ before marriage and mortgage and children. Although admittedly I now have a mortgage, and still an urge to travel – especially thinking that I’ll soon have kids, I’m even more encouraged to ‘think big’ and make the most of my trips :D

  2. i have saved in a similar way and have $40,000 set aside. i initially thought I would save to help with education but now have decided to give the money when it is time to buy a home. I think that if I give the money now (my child is 18) it will only be used for overseas trips or cars. These are things she can readily save for on her own if she wants them badly enough. Buying a house however requires a huge deposit these days and would be better use of the money that has been saved.

  3. I’m not sure if I agree with your idea Melissa.

    $10,000 seems a lot of money but with inflation it will buy a lot less value than $10,000 now. (If you are getting 4% interest Inflation will be reducing the value of your final figure by around 2-3% per year compared with todays dollars.

    Having two adult children I can tell you as they get older costs usually go up faster than wage rises. Flashier toys, interest in fashion/designer labels, peer pressure, school trips, mobile phones etc etc.

    I think a better strategy is to set a figure, for instance $10 a week and aim to pay that for the period. You then get the benefit of compound interest for 17 years on $520 for the first year rather than $52 and so on.

    We should have waited until they were 21. If you give it too them at 18 they will most likely buy a car. By making them save if they want a car at 18-19 you will have instilled in them the advantages of saving.

  4. My husband & I are doing this for our two children (one is 2yrs & one 3months old). We have budgeted to make the deposits at the start of the year so they accumulate more interest. I think any kind of money saved up for your kids would be a significant help later on. Wish my parents did this for me!

    1. Hi Jemma, that’s a great idea, doing it at the beginning of the year. My parents didn’t save money for us either, but they helped out a little here and there when they could.

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