The average cost of raising a child in the United States is more than $300,000. That might sound daunting, but if you break that number down into smaller savings targets — and grow your savings year by year as your child grows — you can tackle those costs with confidence. Read more: Learn how Ally Bank’s buckets and boosters tools can help you organize your savings goals.
Understanding your savings goals
Perhaps you want to start a college fund for your child or set money aside to help them with a down payment on a future house. Knowing how you’d like to support your child financially can help you allocate your savings appropriately.
How much should you save by age?
In 2017, the U.S. Department of Agriculture published an annual report that calculated the average cost of raising a child born in 2015 to adulthood. While inflation adjustments should be considered, use these numbers as benchmarks for your yearly savings goals, but keep in mind that depending on your family's situation, the amount you need will vary.
Your kid's age | Annual costs per child |
|---|---|
0 to 2 years | $13,600 |
3 to 5 years | $13,600 |
6 to 8 years | $13,200 |
9 to 11 years | $14,100 |
12 to 14 years | $14,000 |
15 to 17 years | $14,900 |
Note: These expected costs from 2017 are based on the average financial needs per child for a family of four with an income of $75,000 to $100,000/year — roughly the median amount most Americans believe families need per year.
Setting annual savings goals
Much like planning for retirement, the sooner you start contributing to your child’s savings, the better. So, regardless of how much you’re able to set aside each year, establishing a savings account for your infant and contributing regularly can set them up for success over time.
As your child ages and your income grows, consider increasing your contributions. By the time your child is a teenager and it’s time to focus on a college savings plan, you’ll have a solid nest egg.
Planning for milestones
If you’re the parent to an infant or toddler, a car and college might seem far off, but those expenses sneak up faster than you think.
The best ways to save money for your kids
While saving isn’t one-size-fits-all, the following can be good places to start.
Savings accounts and plans
Get a jump on saving for your child by opening a:
Savings account: Ally Bank allows parents to open a savings account for their children, so you can manage their money until they’re old enough to do it themselves.
529 college savings plan: This tax-advantaged savings account can help you save for your child’s future education expenses. Note that 529s aren't offered at Ally. We recommend researching what's available to make the best choice for you and your child.
Roth IRA for kids: Opening a tax-advantaged account for your child could help them maximize retirement savings in the future.
Diversify with investments
The earlier you start investing for your child, the longer that money has in the market. Consider:
Mutual funds: A mutual fund offers a way to diversify across a wide range of assets, reducing risk.
Custodial accounts: A custodial account allows you to invest money on behalf of your child until they reach adulthood (18 to 21 years of age, depending on the state).
Use this calculator to get an idea of how much your child’s portfolio could potentially be worth over time based on how much you want to invest, how long you plan to invest for and what you expect as your rate of return.
This calculator is intended to be informational only and does not indicate future performance or returns.
How to get kids involved
In addition to setting money aside for your children, you’ll want to make sure you're giving them the information and tools they need to succeed. You don't need to involve them in every step, but look for financial literacy opportunities to boost their confidence, such as:
Create a dedicated savings space for them (like an online savings account)
Encourage chores or part-time jobs for additional earning opportunities
Discuss the importance of scholarships and grants for educational expenses
Balancing your financial priorities
College expenses can often feel like the ultimate savings goal for your child. But kids come with several types of financial costs, so make sure to spread your savings across a lifetime. College tuition, a wedding, a down payment, retirement - there's no shortage of expenses to prepare for in the future.
Take action today
Much like parenting, saving is a marathon, not a sprint. Small, consistent contributions will grow over time. Start as soon as possible, be strategic and explore different savings accounts and investment opportunities, and you can help set yourself and your kids up for financial success.
