What Is the Best Way to Save Money for Children?

From Toys to Savings

• Most kids have a lot of toys, gadgets and games. If you have a lot of things your children have outgrown or no longer play with, put them aside and keep them in good condition for a garage sale or to sell on eBay. This may not produce record-breaking revenues, but you should be able to get a few hundred dollars to put into a savings account for your child. This will earn some interest, and you can add money at any time.

  Once you have a savings account, make a commitment to put a small amount in it every month. If all you can do is $5 every month, then do it. When you can add more, do so. Don't leave savings money around the house. It is easy to grab it in a pinch and spend.

  Savings bonds are secure long-term investments that offer higher returns than a savings account. These are most often issued by state or federal agencies.

UPromise

• Upromise is a program that allows you to save for your child's education without having to put any money aside. When you register with Upromise, a custodial account is established for your child. When you purchase Upromise-designated items through a credit card you have linked to the account, your child's account is credited with a rebate amount for the purchase.

  You can buy items from many corporate partners throughout the United States. There are many grocery items, electronics, computers and department-store partners. The money you're spending on living expenses can help you save for college expenses down the road.

529 Plan

• A 529 plan is a tax-advantaged way to save for college. There are two types: prepaid tuition plans and college savings plans. Every state sponsors at least one (see Resources).

  Prepaid tuition plans lock in rates at eligible schools to cover tuition, mandatory fees and possibly room and board. These are most often sponsored by the state of residency.

  If you are unsure about the state in which your child will attend college, a 529 savings plan does not lock you into anything. You make contributions that are invested, and the money earned (interest, capital gains and dividends) grows tax-deferred. If the money is spent on higher education, you won't pay any tax on the earnings when they're withdrawn.

Strategy

• In general, it is better to be more aggressive with the money when your child is young and there's time to recover from any downturn in the market. As she gets closer to college, move the money into more conservative vehicles.