About Children's Saving Accounts
It's never too early to start saving for your child's college tuition and other future expenses. In years past, many schools encouraged children to participate in sponsored savings programs, but this is no longer the case. Today, parents in the United States must contend with this significant matter alone. However, legislators are currently working to change that.
Benefits
Setting up a savings account for your child has many obvious benefits. Since college is so expensive, a savings account can help to offset tuition or related expenses like room and board. Savings accounts are also an effective tool for teaching children save money, as well as promoting financial responsibility. Since most banks offer "kid-friendly" accounts, older children can even do some of their own banking, like making deposits or withdrawals.
Types
Parents most commonly secure a traditional bank account for their children. Accounts geared toward children generally offer easy transactions and slightly higher interest rates, but may have a limit on and/or fees for withdrawals. The idea is to keep the money in the bank for the maximum earning potential. Investment accounts require minimum monthly deposits, which are then invested on behalf of the child. These accounts offer higher interest rates but have increased risk. Trust funds are set up for children who won't be able to access the money until the age of 18. They offer competitive interest rates and are sometimes also supported by the government. They are ideal for college savings accounts.
Significance
The United States is the only developed country that doesn't offer some sort of savings plan or other financial support to its children at birth. Countries like Canada, Korea, Singapore and the U.K. sponsor savings accounts for their youngest citizens. In 1995, a program called KIDSAVE was introduced to congress. The program would allow parents who qualified for Earned Income Credit to put that money into a special account for their children. Children could borrow from the account for college, tax-free. The proposal and several others like it have failed. Some would argue that this means the U.S. is not investing in its children.
Potential
In 2007, a bipartisan alliance rolled out a new child-savings-account program called ASPIRE. ASPIRE stands for America Saving for Personal Investment, Retirement and Education. This program would set up a savings account for every American child at birth. This account would serve to pay for the child's education, act as a down payment on her first home or even fund her retirement later in life. This act would especially benefit children in lower-income families, as many aren't given the same opportunities (educational and otherwise) as their higher-income counterparts.
Prevention/Solution
The ASPIRE Act is still in the first step of the legislative process, only having been introduced to congress. It will then go to a committee, where it will be discussed, investigated and revised before being sent to general debate. Unfortunately, many bills never make it past this step. In the meantime, if you haven't already, consider starting a savings account for your child. Most banks offer children's accounts with a very low required initial deposit.
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