Top 5 Mistakes Parents Make When Saving for Their Kids (and How to Avoid Them)

Saving for your child’s future is one of the most important financial decisions you’ll ever make. Whether you’re aiming to fund their college education, help them buy their first car, or give them a strong start in adulthood, the way you save matters just as much as the act itself.

Unfortunately, many well-meaning parents make common mistakes that hinder their child’s financial future. But by learning what to avoid, you can ensure your money works smarter—not just harder.

Here are the top 5 mistakes parents make when saving for their kids—and exactly how you can avoid them.

1. Waiting Too Long to Start Saving

🚫 The Mistake

Many parents put off saving for their children until they feel more financially secure. With diapers, childcare, and everyday expenses piling up, it’s easy to assume you’ll start “next year.”

⚠️ Why It Hurts

Delaying your savings plan can drastically reduce the impact of compound interest, the powerful force that allows your money to grow over time. Starting just five years later could cost you thousands of dollars in lost investment returns.

According to Investor.gov’s Compound Interest Calculator, investing just $50/month for 18 years at 7% annual return yields around $21,000. Waiting until age 5 drops the total to $12,000.

✅ How to Avoid It

Start early—even with small amounts. Begin with $25 or $50/month and set up automatic transfers to a dedicated account. Over time, the habit matters more than the amount.

Pro Tip: Use tools like NerdWallet’s Savings Calculator to set realistic goals and visualize future growth.

2. Using the Wrong Type of Account

🚫 The Mistake

Stashing money in a standard savings account or holding cash can feel “safe,” but it may not be effective for long-term savings goals. Many parents aren’t aware of specialized options.

⚠️ Why It Hurts

Most savings accounts earn less than 1% interest—far below the average annual inflation rate. That means your money is slowly losing value. Plus, the wrong account could negatively impact taxes or financial aid eligibility.

For example, custodial accounts count as student assets and can reduce financial aid by 20%, while 529 plans are considered parental assets and reduce aid by only up to 5.64% (Source: Savingforcollege.com).

✅ How to Avoid It

Choose the right account based on your child’s future goals:

• 529 College Savings Plan: Tax-advantaged, flexible for education-related expenses, and often offers state tax deductions. Learn more at College Savings Plans Network.

• UGMA/UTMA Custodial Accounts: Flexible for non-education expenses (cars, housing, business, etc.) but become the child’s property at the age of majority.

• Robo-Investing Platforms (like Mostt): Provide simplified investment accounts tailored to your goals and your child’s age.

Compare options with Consumer Financial Protection Bureau’s guide to kids’ savings accounts.

3. Saving Without Investing

🚫 The Mistake

Parents often feel hesitant about investing money meant for their kids. They worry about market volatility or don’t feel confident navigating stocks or mutual funds.

⚠️ Why It Hurts

Not investing means your money may not outpace inflation. Over 10–20 years, this can severely reduce purchasing power. Even high-yield savings accounts earn around 4% APY or less (as of early 2025), compared to the historical stock market return of 7–10% (Source: Investopedia).

The opportunity cost of not investing is often greater than the risk of doing so wisely.

✅ How to Avoid It

Start with diversified portfolios and automated investing tools. Look for platforms that offer:

• Age-based portfolios that reduce risk over time

• Automatic rebalancing

• Low or no account minimums

Even a conservative portfolio of 60% stocks and 40% bonds can deliver consistent long-term growth with manageable risk. Consider using apps like Mostt, which offer simple, goal-based investing for children with as little as $25/month.

4. Prioritizing Kids’ Savings Over Parental Financial Health

🚫 The Mistake

Out of love and sacrifice, parents often save for their children while neglecting their own emergency fund, retirement savings, or debt payments.

⚠️ Why It Hurts

If a financial emergency arises and you’re not prepared, you may be forced to withdraw from your child’s savings—or worse, go into debt. Without adequate retirement savings, your children may end up supporting you later in life.

According to Fidelity’s Retirement Savings Guidelines, you should aim to have 10–12x your income saved for retirement by age 67. Skipping this in favor of college savings puts your financial independence at risk.

✅ How to Avoid It

Before saving for your child, prioritize:

1. A 3–6 month emergency fund

2. Paying off high-interest debt

3. Contributing at least enough to your 401(k) or IRA to get a company match

Once your financial foundation is secure, shift focus to your child’s account. Remember: You can borrow for college. You can’t borrow for retirement.

5. Not Setting a Clear Savings Goal

🚫 The Mistake

Many parents start saving with good intentions but no specific goal. “We’ll figure it out later” becomes the default strategy.

⚠️ Why It Hurts

Without a defined goal, it’s difficult to track progress, stay motivated, or know if you’re saving enough. It can also result in choosing the wrong account or investment strategy.

✅ How to Avoid It

Use SMART goals—Specific, Measurable, Achievable, Relevant, and Time-bound.

Here are a few examples:

• ✅ “Save $25,000 for college by 2039 with monthly contributions of $150.”

• ✅ “Build a $5,000 car fund by age 16 through investing $40/month.”

• ✅ “Invest $100/month in a custodial account until age 25 for a first-home down payment.”

Apps like Mostt help by offering built-in goal tracking, projected growth estimates, and alerts when you’re off track.

Need help creating a plan? Try the College Board’s savings calculator to see what your target should be.

Final Thoughts: Start Simple, Stay Consistent

Saving for your child’s future doesn’t have to be overwhelming or complicated. It just needs to be intentional.

Here’s a quick recap of what to avoid and how to stay on track:

Ready to take the first step?

At Mostt, we make it easy to start saving and investing for your child’s future. Open an account in minutes, set a goal, and start investing with just $25/month.

✔ Goal-based planning
✔ Age-appropriate portfolios
✔ Simple, automated investing

👉 Get started now at Mostt.co ›