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Open a Custodial Account for Your Child, Part 1

April 21, 2023

As soon as your kids have any money flowing into their lives, teach them to prioritize giving and saving ahead of spending. When they’re super young, a three-slotted piggy bank or three mason jars can be used to build the habit of allocating money across those priorities of giving, saving, and spending. The first portion goes toward God’s work in the world, the second portion is saved for later use, and the third portion may be used for spending.

Soon enough, at around age five or six, it’ll be time to set them up with a real savings account at a real financial institution, such as a credit union. You can help them by opening what’s known as a custodial account.

The basics

By law, a child can’t have a savings or investment account in their own name until they hit the “age of majority,” which is 18 in most states, 19 to 21 in others. Until then, parents or legal guardians can open a custodial account for their minor children. Legally, the child is the beneficiary of the account. The money in the account belongs to the child, but they won’t gain independent control of it until they hit the age of majority.

It takes jus a few minutes to open a custodial account (here’s a link to CCCU’s no-fee SmartStart savings account form), and the account can be funded with very little money ($25 in CCCU’s case).

The benefits

There is so much good that will come from helping your kids develop the habit of saving money, including:

  • It’s biblical. God’s Word says, “The wise man saves for the future, but the foolish man spends whatever he gets” (Proverbs 21:20, TLB). As soon as your kids are able, it would be good to have them memorize that verse. And help them understand God’s heart behind such teaching. God is their heavenly father. He loves them and wants what’s best for them. Maintaining a reserve of savings is wise stewardship. It enables us to buy without taking on debt and all of the stress that comes with debt.
  • It introduces the idea of passive income. Savings accounts may not pay a lot of interest, but they do pay some, and that’s a wonderful thing. Having a savings account opens kids’ eyes to an important new way of generating income.
  • It fosters delayed gratification. This is one of the most important character traits. Research conducted at Stanford University (the “marshmallow test”) powerfully demonstrated that kids who at a young age could put off an immediate reward in order to receive a better reward later showed remarkable differences later in life vs. kids who couldn’t wait—they were better able to maintain friendships, had more self-confidence, were better at problem-solving, and more. That’s exactly what saving money is all about—putting off the temptation to spend everything a child gets right now in favor of saving a portion for something better and more expensive later.
  • It helps avoid debt. If a young child gets in the habit of spending everything they have, once they are eligible for a credit card, they may get in the habit of spending more than they have. That’s why it’s so important to cultivate the habit of setting aside a portion of all they receive for savings when they are very young.

So, why not open a custodial account for your child today? We’ll have some more ideas about fostering the habit of saving money in your children in a future article.  

Start your kids with myCCCU’s simple SmartStart Savings account today. Help your kids set goals, and make deposits so they can watch their savings grow! With the SmartStart Savings Account, kids can learn the value of saving for the future. It’s the start of a financial journey that can benefit them for a lifetime! Learn more at SmartStart Savings Account.

Matt Bell is the author of Trusted: Preparing Your Kids for a Lifetime of God-Honoring Money Management. He speaks at churches and conferences throughout the country and writes the MattAboutMoney blog.

This article should not be considered legal, tax, or financial advice. You may wish to consult a tax or financial advisor about your individual financial situation.

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