Where to Invest a Child's Money

Teaching a child at an early age about the right ways to invest is a part of the developmental process that will help them succeed in the future. There are a few things to consider when deciding where to invest your child’s money; some options are better than others.

The best place to invest your child’s money is at a financial institution that allows you to open up an account specifically for this purpose. There is an Act for Uniform Gifts to Minors that allows you, as an adult, to control the investments of your minor. Depending on the state you live in, once your child reaches 18, the money is transferred to his or her name so he or she has complete control over it at that point. In some states, the age of transfer is 21.

Although you have complete control over this type of account while the child is a minor, you can also opt to have the child participate in the investment decisions. This is one of the benefits of this type of account. Although you do not need permission from the minor, by allowing him to participate in the decision making, you are teaching him an important lesson within money management.

The main benefit of this type of investment is the fact that the amount of money the child will receive when they are able to control the account is a large amount that can be used for educational or living expenses. If the account compounds at 10 percent on an annual basis, if you invest $1,200 annually, this can turn into more than $75,000 over the course of 20 years.