It’s 2024 and just like 2023 and the year before, and even in 2021, you have vowed again to start saving for your kids.
Knowing fully well that your career may soon start winding down but the expenses and bills your kids would need as they grow is doing everything but slowing down.
It is crystal clear that you need to start a savings account for your kids and fast.
Just like the proverbial creek, many are left in the financial waters without a paddle. Although they have good financial intentions, the how is the problem.
How do I start saving money for my kids? What platforms or services should I employ? What percentage of my income should I set aside for this purpose?
Who is the custodian of these accounts?, and many questions along these lines plaque the average Joe thinking of creating a savings account for their kids.
In today’s Nigeria most families are struggling to make ends meet and barely have enough to put aside for savings and it becomes a mockery of some sort to suggest savings for kids amid such dire conditions.
I mean, wasn’t it the Nigeria Deposit and Insurance Commission NDIC boss, Mr. Bello Hassan who said in 2021 that 99.4% of bank accounts contained less than N500k?
Hopefully, this article provides you with the needed clarity on how to go about this.
Why you should start saving for your kids now.
- Rising needs: Your five-year-old may not need more than a bunch of wears, food, a few gadgets, and maybe a little bit of spare change. This changes drastically when they begin to hit their early and late teens. Expenses like costlier clothing, university education, laptops, and other gadgets come into the picture. The degree to which you are unprepared for this phase is the same degree to which it could be tedious if not overwhelming.
- Declining income: As you gradually fall from your years of peak performance, your income may also fall.
Factors to consider before choosing an account option for your kids
- Reliability: Only choose options that are from reliable and trustworthy entities like tier-one banks that have stood the test of time. Since savings for kids take a longer time horizon, you must ensure that you patronize entities that are duly registered with relevant authorities, reliable, and transparent.
- Accessibility: How easy is it to access the funds in the savings account? Do you have to wade through a lot of paperwork to lay hand on your savings? Do you prefer options that compulsorily deny you access to your funds until a certain date? You need to ask yourself these questions before choosing a savings option for your kids.
- Interest rates: If you must save why not get the option with the best interest rates? If there are two options present with very similar offerings, choosing the one with the higher interest rate is the better decision. For example, the Access Bank Early Savers account offers 5.4% interest p.a while GTB SKS offers just 4.95%. If all other selection criteria are same, the Early Savers presents the better option.
- Ease of service: Some offerings have automated service delivery. For example, saving with Cowrywise may help you stick to your plans as they offer automated deposits where funds are automatically deducted from your bank into the savings account. If you love all things modern, automated and easy, options like these would be a better fit.
Understanding the different account options available for you in Nigeria.
Almost, all major tier-one banks in Nigeria have kid savings accounts with different incentives and packages. It all boils down to the individual and their preferences because, like most banking offerings, the difference in service delivery quality is negligible.
First Bank – KidsFirst: This offering is from Nigeria’s oldest Bank, First. The offering has no monthly maintenance fees and no minimal balance.
This means you can deposit and withdraw from this savings account whenever you want to. Also, it has the automatic deposit feature making it easy to contribute to the savings account.
The savings account is specifically designed for kids below the age of 18.
Guaranty Trust Bank – Smart Kids Save (SKS): This account option is offered by Guaranty Trust Bank and is specifically for kids younger than 18 years old.
With a 4.95% interest rate, this account offers reasonable returns on savings. However, the account must have a minimum balance of N100,000.
This account can be opened by simply walking into any GTCO bank branch or using their online platforms.
Zenith Bank Children’s Account (ZECA): This option is offered by Zenith Bank and is one of the free options that allow savings in Naira and Dollars.
The account comes with a debit card giving access to the funds in the account on request.
Setting up kid savings account for four children (A case study)
Let’s look at a case study of Jide, a Civil Engineer working at a construction firm in Abuja. He nets N400,000 as base salary from his employer every month.
As a financially prudent man, he puts aside 20% of his earnings for savings, 10% for investing, 40% for recurring expenses, and 15% for rent.
At the end of the day he is left with just 15%. At the end of each month, he always cannot account for 5% of his income and has come to believe that they are for miscellaneous expenses.
Jide has four kids, the eldest in JSS2 and the youngest just got enrolled in a creche. In less than 6 years he would need to sponsor his eldest child through his university education.
He finds it hard to believe the amount he spends on their education in the nation’s capital. As per a Business Day article, some parents in Lagos claimed school fees in their ward’s school were hiked last year from N500,000 to N1.2 million. How then can Jide cope?
From the numbers, Jide is left with just 10% after all is said and done. He may decide to open a savings account for his kids and save 2.5% of his income for each child.
This amounts to N10,000 per child and N120,000 per year. If Jide can do this diligently for 6 years, he would have saved N720,000 for his eldest child more than enough to see through at least two years of schooling expenses.
Should I be worried about inflation?
With Nigeria’s inflation hitting high double-digit numbers (28.20%) at the tail end of last year, it is not out of the ordinary to be worried about the deteriorating effects inflation has on your savings.
The harsh realities of inflation have indeed left the pages of economic texts and the common man feels its pangs. What then happens if I painstakingly save money only for my effort to get eroded by inflation?
Of the options available in Nigeria for saving for your kids, none of them offer interest rates that match the prevailing inflation.
With rates as low as 4.95% on the GTCO SKS kids account, your savings would get battered by the high inflation.
Say you manage to save N800,000 which is meant to cover your child’s 4-year education but when the time comes, tuition and the cost of living might have doubled.
This poses a big problem. The next two sections of this article look to offer helpful alternatives to just saving for your kids.
How to save for your kids using Dollar-denominated assets.
With the Naira losing more than 40% of its value against the US Dollar in 2023 alone, it is a no brainer that putting all your assets in Naira-based denominations is than investment error.
To safeguard your tedious savings for your kino-brainer Naira volatility, you can save naira-based instead. Accounts like the Zenith Bank Children’s Account ZECA allows Dollar deposits into the account.
Should I save for my kids or invest?
As mentioned earlier, the return on kids savings accounts allows below-prevailing interest rates and sometimes it feels like a disservice to save and assume the role of a kids’ lover because of rising inflation. One way to counter inflation is by investing.
Let’s go back to Jide the civil engineer. Instead of saving 2.5% for each child, he may consider saving 0.5% and investing 2% in low-risk assets like government-issued bonds and treasury bills.
These instruments promise relatively higher returns. Investing in mutual funds is also a viable alternative. Here are some returns from investing in mutual funds in 2023.
ARM money market fund (13.01%).Stanbic IBTC aggressive fund (49.9%), Stanbic IBTC balanced fund (26.75%). These promise a much higher ROI than simply stashing monies in a kid’s savings account.
To take a more conservative approach, one may decide to put 80% of the allocations for savings in a savings account and invest 20% in promising assets for their kids.
In conclusion, as the new year unfolds there is no better time than now to decide to ensure a secure future for your kids.
Consider a disciplined and consistent way of contributing to the account. Take the necessary to create a worthwhile future for your children.
