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In the year 2024, the determination to secure a financial future for your children persists, despite the economic challenges that many families face. Initiating a savings plan for your kids is not only a wise decision but also a crucial step toward providing for their needs as they grow.
The journey of saving for your kids begins with addressing fundamental questions: How do I start? What platforms or services should I use? What percentage of my income should be allocated to this purpose? Who will be the custodian of these accounts?
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Given the economic realities in Nigeria, where many families grapple with financial constraints, the idea of saving for kids might seem daunting. However, it is essential to recognize the long-term benefits and stability it can offer to your children.
Reasons you should start saving for your kids now
Education Expenses
One of the most significant financial commitments for parents is funding their children’s education. As they progress to higher levels of education, the costs escalate. Starting to save early allows you to accumulate sufficient funds to cover tuition, books, and other educational expenses.
Financial Safety Net
Building a financial safety net for your children ensures that they have a foundation to fall back on in times of need. Whether it’s supporting them during challenging times or providing assistance for major life events, having savings in place offers peace of mind.
Declining Income in Later Years
As you transition from your peak earning years, there’s a likelihood of declining income in the later stages of your career. Initiating savings early allows you to build a substantial financial cushion that can compensate for any income reduction in the future.
Inflation Hedge
Inflation erodes the purchasing power of money over time. By saving and potentially investing, you can hedge against inflation, ensuring that the value of your savings keeps pace with the rising cost of living.
Emergency Expenses
Unexpected expenses can arise at any time. Having savings for your kids provides a financial buffer to handle unforeseen circumstances, such as medical emergencies, home repairs, or other urgent needs.
Consider these factors before choosing an account option for your kids
Choosing the right savings account for your kids involves careful consideration of various factors to ensure you make a decision aligned with your financial goals. Here are key factors to ponder before selecting an account option for your children:
Reliability: Opt for options provided by reliable and trustworthy entities, particularly tier-one banks with a proven track record. Ensure that the chosen entities are duly registered with relevant authorities, known for their reliability, and maintain transparency in their operations. This is crucial for the long-term nature of savings for kids.
Accessibility: Evaluate the accessibility of funds in the savings account. Consider factors such as ease of withdrawal, associated paperwork, and any restrictions on accessing funds before a specified date. Some accounts may impose limitations on withdrawals, so it’s essential to choose an option that aligns with your preferences regarding access to funds.
Interest Rates: Compare the interest rates offered by different savings account options. Opt for the account with competitive interest rates, especially when faced with similar features from different providers. For instance, if two options offer similar services but one has a higher interest rate, choosing the latter can result in greater returns. Consider accounts like the Access Bank Early Savers with a 5.4% interest rate or GTB SKS with a 4.95% interest rate.
Ease of Service: Assess the ease of service delivery offered by different savings options. Some accounts provide automated services, such as Cowrywise, which facilitates automatic deposits by deducting funds from your bank account into the savings account. If you prefer modern, automated, and user-friendly options, consider those that align with your preferences for ease of service.
Different Kid Savings Account Options in Nigeria
In Nigeria, major tier-one banks provide various kid savings accounts, each with distinct incentives and packages. The choice among them hinges on individual preferences, as the disparity in service delivery quality among these banking offerings is marginal.
First Bank – KidsFirst:
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- From Nigeria’s oldest bank, First Bank, KidsFirst is tailored for children below 18.
- It boasts no monthly maintenance fees or minimal balance requirements, providing flexibility for deposits and withdrawals.
- The automatic deposit feature simplifies contributions to the savings account.
Guaranty Trust Bank – Smart Kids Save (SKS):
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- GTBank’s SKS caters to children under 18, offering a 4.95% interest rate for reasonable savings returns.
- A minimum balance of N100,000 is required, and the account can be easily opened at any GTCO bank branch or through their online platforms.
Zenith Bank Children’s Account (ZECA):
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- Zenith Bank’s ZECA stands out as a free option accommodating savings in both Naira and Dollars.
- The account provides a debit card for convenient access to funds upon request.
Nurturing Financial Security Amidst Inflation Worries
As Nigeria grapples with soaring inflation, reaching an alarming 28.20% at the close of the previous year, concerns about safeguarding savings against its erosive effects become valid. The harsh realities of inflation extend beyond economic discussions, affecting the common man’s financial landscape. For those diligently saving for their children’s future, the looming question arises: What happens when painstakingly saved money succumbs to inflation’s relentless grasp?
Inflation vs. Kid Savings Accounts
Within the realm of available savings options for kids in Nigeria, none seem to match the prevailing inflation rates. Kid savings accounts, like the GTCO SKS with a modest 4.95% interest rate, fall short, leaving savings vulnerable to the impact of high inflation. Imagine saving N800,000 for your child’s 4-year education, only to find that when the time comes, the costs have doubled due to inflation.
Alternative Approaches: Dollar-Denominated Assets
In the face of the Naira’s devaluation by over 40% against the US Dollar in 2023, solely relying on Naira-based assets becomes a potential investment error. To shield savings from Naira volatility, consider options like the Zenith Bank Children’s Account (ZECA), which permits Dollar deposits.
Should I Save or Invest?
Given the relatively low returns of kids’ savings accounts, often trailing inflation rates, it may seem inadequate to play the role of a benevolent saver amid rising inflation. A countermeasure to inflation’s erosion is embracing investment. Rather than allocating the entire savings amount to a traditional account, consider a hybrid approach. Save a portion and invest the rest, perhaps 80% in a savings account and 20% in low-risk, high-return assets such as government bonds, treasury bills, or mutual funds.
Embracing Investment Avenues
Investing in mutual funds presents a compelling alternative to traditional savings, promising higher returns. In 2023, returns from various mutual funds included ARM Money Market Fund (13.01%), Stanbic IBTC Aggressive Fund (49.9%), and Stanbic IBTC Balanced Fund (26.75%). This starkly contrasts with the lower returns from typical savings accounts.
As the new year unfolds, now is the opportune moment to secure a prosperous future for your children. Adopt a disciplined and consistent savings and investment strategy. Take the necessary steps to pave the way for a worthwhile and secure future for your children.
