How to Build a Nest Egg While Your Kids Are Still in the Nest

by Jessica Sommerfield · 16 comments

Have you ever wondered where the term “nest egg” comes from? Not surprisingly, it’s a farming term. In order to motivate hens to begin laying eggs, or to lay more of them, farmers placed eggs (both real and fake) in their nests.

In finances, this term refers to any funds set aside for a specific purpose, so they can grow and be used later in life.

When you’ve heard the term nest egg before, you may have thought only of retirement savings. This is just one of the many purposes for which people start and contribute to a nest egg.

Nest eggs can be created for funding any large investment, including your child’s education. College is expensive. Personally, I want to learn my from own experience of being forced to rely on student loans when it comes to planning for my own children.

Children are too young to be worried about saving for their futures, so it’s our job as parents to begin the process for them. That way, they’ll be well on their way to financial stability as they grow into adulthood. Starting to build a financial nest egg for them while they’re still in the nest not only creates a more hopeful financial outlook for their future; it’s a perfect opportunity to teach them good financial habits.

Here are a few practical ways to start a nest egg for your children:

1. Save what you can, when you can

When your family is young, there are so many demands on your money; there won’t be money laying around begging to be invested in a nest egg. You have to take the time to plan a nest egg savings category into your budget, even if it’s small. (Remember that even a small investment grows exponentially over time with the wonder of compound interest!)

Be sure to take advantage of tax-deferred or free accounts designed specifically for college savings.

Good habits

2. Encourage financial responsibility in your children

Teach your children to save money from gifts and other small jobs, instead of spending it, but don’t force them to. Forcing kids to save their own money for their college fund isn’t as effective as encouraging this behavior and emphasizing the positive results. The desire to be involved in their own finances will lay the ground work for their adult attitude toward saving.

3. Contribute toward the nest egg in lieu of short-term gifts

You shouldn’t deprive your child of gifts, but if it’s a choice between something that’s momentary or something that’s lasting, consider investing in their future. They may think of you as a tightwad now, but they’ll definitely thank you later!

Have you started a nest egg for your kids? How do you find the money to contribute to it?

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{ 16 comments… read them below or add one }

David @ Simple Money Concept April 25, 2014 at 11:02 am

True. Good financial habits have to be taught at a young age. A lot of experts agree that at age 3, kids can start to learn about money.

When my daughter turned 3, I began to show her the coins. She was learning about the different coins and the values they represent. I remember just one day after I showed her the penny, nickel, dime, and quarter for the first time, she asked me “where’s my quarter?”

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David Ning April 25, 2014 at 9:10 pm

Hehe David. You can’t fool 3 year olds anymore!

My daughter is 4 and she’s starting to know that you have to work in order to have money and that she doesn’t have any :)

But she’s figured out that when she just wants something, she can just ask daddy for some!!

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John @ Sprout Wealth April 25, 2014 at 12:21 pm

I agree with David that you can start as early as 3 with most children. We’ve handled it that way with our kids and just start out with very very basic discussions. We also like to look for ways to teach them about money in everyday events so we can help them see it at their level as kids think so concretely. We budget a small amount for all of our kids college funds as well as putting away gifts they get as well. They’re so young that they really don’t miss it and we’ll hold a little bit out of each gift out for them to get something they want.

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David Ning April 25, 2014 at 9:12 pm

Your approach with cash gifts is exactly what we’ve been doing. When the kids get a larger amount, they are just as happy getting that one toy and us banking the rest for them vs them spending big on a big item.

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Dan @ Our Big Fat Wallet April 26, 2014 at 2:51 pm

We don’t have children yet but when we do start a family we plan on setting aside a small amount each month thru automatic withdrawals (into a savings account). If it’s automatic and budgeted for it will accumulate into a larger amount over time and hopefully help pay for their education. It only takes a few minutes at the bank to set up and makes saving so painless. We also plan on having our kids involved in saving and budgeting to lead by setting a positive example they can follow when they grow up

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David Ning April 27, 2014 at 9:21 am

Remember to consider a 529 if you are thinking about saving for your kid’s college. Pretty much all the platforms also have an option that allows you to setup automatic contributions too.

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Alex @ Credit Card XPO April 26, 2014 at 7:58 pm

I’m just starting to teach my 5-year old son about money and haven’t started a nest egg for my kids yet. After reading your article, I think I better start soon. Great post. thanks!

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David Ning April 27, 2014 at 9:23 am

Starting as early as possible is the way to go. My kids are still small but I’ll be starting a Roth IRA for them as soon as they have earned income. Five or six decades of tax free compounding will be sweet!

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lana April 26, 2014 at 11:16 pm

I taught my children about money when still toddlers. I taught them to count, we played with a cash register, we discussed sales discount percentages. When they grew older I showed them household bills, the mortgage payments, we discussed when purchases were “not in our budget”. We went on trips and saved for them. When we went overseas for six weeks, we planned out our weekly expenses and discussed how to save money. We paid off our home and cars while showing the kids how and why it’s important. We worked with them so they don’t have debt while going to college. They both have savings, reasonable expectations and scholarships. One is graduating with a bachelors and is going on to get a graduate degree for free. We pay the difference. We also tithe and are working on saving 40 gross income. Smart money handling is a very important part of a child’s education and a family’s well being.

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David Ning April 27, 2014 at 9:26 am

Good plan lana,

Getting out of college debt free is one of the best ways you can help your children get a leg up on society. And with your savings rate, you’ll be very comfortable in retirement too!

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Gary Kerr April 29, 2014 at 4:02 am

It is pretty much impossible to make your child a millionaire by investing in a Junior Isa – but forbade to say never. A recent analysis of JP Morgan Asset Management’s Junior Isa investors has shown a large number of parents favour emerging markets, where the favourable demographic factors and higher rates of economic growth can produce better returns than more developed markets such as the US and UK.

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David Ning April 29, 2014 at 9:01 am

UK’s ISA is similar to our IRAs here, and it’s actually very possible to create a million dollar account. You just need consistency and time for your money to compound.

It’s interesting though that parents are favoring emerging markets though since people are generally avoiding it here in the US, as evidence by the cheaper valuation.

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Property Marbella May 1, 2014 at 4:14 am

To save for their children’s education, first car, etc. is something that many young people do not think of when they have children. Most often, they have not sorted out their own finances even with residential buying, car buying, and jobs. Unfortunately, this is sputtered reason for the major economic problems that parents get when the kids grow up.

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David Ning May 4, 2014 at 4:35 pm

To be fair, it’s very difficult for young couples to imagine the financial pressure a modern day child could bring to the family. And plus, those headlines about how much raising a kid costs is just an average.

There are still plenty of families raising wonderful kids at a fraction of the cost. It’s all about how the parents practice financial discipline.

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Arun May 3, 2014 at 7:15 am

It is true. I should have started to save early, but made mistake and graduated with more than $50 000 student loan… I won’t make this mistake for my kids, and will teach them about money early.

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David Ning May 4, 2014 at 4:36 pm

Compound interest my friend. The phenomenon of money working for us is not magic, but at the same time it is!

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