If you aren't already a parent, you might wonder- how expensive can children be? But those that have kids know precisely how child-related expenses pile up and can run into thousands of dollars each year.

For example, today, in an average household, expenses towards a 12-year-old can easily reach between $22,000, $30,000 annually, and these figures only escalate with each passing year.

Basic Expenses

A growing child requires food, housing,  medical, educational and many miscellaneous expenses. However, this does not cover the savings needed to meet a child's future college tuition, fees, room, board, and other costs when they live away from home. Parents, both prospective and existing, need to look for ways to save and invest for their children.  

Some children learn money management strategies early in life, and later pay for their own higher education and chart a path of financial success.

But there is no certainty on this count, and parents will have to jump-start their savings for children early during their working life.

Don’t  Bank on Home Equity

Many parents view their home equity as savings they can easily dip into when required.  However, property values fluctuate depending upon the economic conditions in the realty market. So it isn’t always a smart idea to bank on this avenue when it comes to children-related expenses.

On the other hand, adopting strategic methods and setting up accounts yields far better savings that you use when needed. The sooner you start saving, the more time your money has to grow. The longer you save, the more money you have on tap.

So when the time comes to pay for your children's college, you are ready with a stockpile. Here are 12 ways to save and invest for your children:

1. A Separate Savings Account

A high yielding savings account is necessary when you need savings for future use. This account is separate from your regular savings account you use routinely.

For example, savings account at an FDIC- insured bank provides you safety and a reasonable rate of 1.5% APY. It helps to give a nickname this account like ‘Kid’s Fund” etc. This will encourage you to keep adding money into the account to reach the goal you have set for yourself.

2. Open A Children's Savings Account

Most banks and credit unions offer children's savings accounts.   These accounts are co-owned with parents and help to develop a saving habit among children, as also introduce them to money management.

When they reach a certain age, they can have a teen checking account and a debit card.  Parents need not worry about their children overspending as these cards have a lower spending and withdrawal limit.

Parents can also keep an eye on the account as co-owners and help children learn more about money management.

3. Start a Custodial Account

This account keeps safe the savings built for your child's education, a house, etc. until the child becomes an adult. The account is funded and managed by you, but the child is the account holder.

You have no control over the use of the account once the child becomes an adult because the savings are transferred from the custodial account to the child's account. You can open these accounts at banks or brokerage firms.

UGMA (Uniform Gifts to Minors Act) and UTMA (Uniform Transfer to MinorsAct) govern the operation of custodial accounts.   Children under 18   get standard tax breaks under this account.

There are no restrictions as to how the account is used so long the beneficiary is the child.  

A portion of the gains from the account is tax-free. Some part is taxed at the child's income tax rate and the residual at the parent's tax rate.

4. Leverage a 529 College Savings or Prepaid Tuition Plan

Contributing to a 529 plan is a good start to save for college education. All50 states offer at least one plan. You can invest in out-of-state 529 plans as well, and there are two types of 529 plans:

• Parents can put money aside in a general college savings plan. The funds can be used at any school, including private schools from kindergarten to 12th grade.
• Parents can put money aside in a general college savings plan. The funds can be used at any school, including private schools from kindergarten to 12th grade.

The first option is more flexible, and many families may find it to be a better choice. Children too can put their money into this account. The major benefit of the plans is that it is tax-deferred. Any withdrawals are tax-free with a proviso that they are for qualified educational expenditure.

You can do some research and compare state plans using sites like Collegesavings.org andSavingforcollege.com.

5. 529 is not the end of savings

A 529 plan has its advantages when it comes to savings. But there are other options, like the Uniform Gift to Minors Act (UGMA) or Uniform Transfers toMinors Act (UTMA) accounts.

These accounts are a way to transfer assets to the minor and offer more investment options.

While opening these accounts, you must remember that after a certain age, the amounts and assets in the account are entirely under the control of children for whom you have opened the account.

6. Open a Coverdell Education Savings Account

This account is similar to the 529 plans discussed above. It is a federally sponsored custodial account or tax-advantaged for qualified educational expenses.

Parents can save money for a child's education, and the amounts grow tax-free until their withdrawal. It includes college as well as private tuition from K-12 grade.

While the account can be opened for a child under the age of 18, the assets must be withdrawn when he or she reaches the age of 30.

There is a lower limit of $2000 to this account, and like 529, the withdrawals for qualified educational expenses are tax-exempted.

7.  Use Your Roth IRA

Sacrificing retirement savings to meet your kid’s college fees may not be a wise decision. That is why you can set up a Roth IRA based on the kind of tax option you prefer. The contribution is limited to $5500, just as for a traditional IRA.

The asset belongs to the child, but you control it till they reach adulthood.

Once your child is old enough, you can make penalty-free withdrawals for educational purposes from its account.

8. Open a Health Savings Account (HSA)

This is a tax-advantaged health saving account available to individuals with a high-deductible health insurance plan.

These individuals can contribute $7000 to a health saving account for a family in 2019.  

An adult child can open an account even when covered by a family plan. It is known to be the only triple-tax-saving tool in the US. HSA funds roll over year to year if not spent and may earn non-taxable interest or other earnings.

9. Set Aside Money in a Trust Fund

Setting up a trust fund is an option for people with assets and money they want to pass on to the next generation. A Trust is a legal entity, and it makes sense to set up a trust fund when you have large amounts to save.

You assign a trustee for the fund and mention who the beneficiary or beneficiaries will be.

Disbursements take place at the appointed time as per the instructions contained in the trust deal. It allows a person setting up the trust to decide how the money will be spent to avoid it from being squandered.

10. As They Grow, Sell

One of the ways to earn some more money is to sell products you have bought for your children, once they have outgrown them.

Parents can use service providers to sell the products their kids no more need. You can get the best value for certain items at specific times of the year, and you can sell various items online. Use this money for their current needs or save anything that is left over.

11. Work Perks

During your working years, you get perks and bonuses that add to your regular income. Sometimes, benefits like a HAS or some discounts on the purchase of products or services are available. All such perks may account for a significant amount over the years and can add to the savings you set aside for your children.

12. Understand Benefits and Insure

Most people have one or other types of insurance. But smart buyers pay for an insurance policy after knowing what additional benefits they can get.

For example, an existing auto policy may come bundled up with a home or renter policy. It is like buying a product after surveying various products in a supermarket.

It is vital to find out what more the company offers to entice the buyer.

Encourage Children to Start On Savings Early

Most parents want to secure their child’s future. Savings and investment are two sides of creating wealth for yourself and your children. Higher education is a critical factor in ensuring that your children become financially successful during their adulthood. As seen above, there are various ways to ensure that savings are available when needed in the required amount in the future.

You can contribute to a variety of plans at different stages of your working life. Educate your kids about the concepts and methods of saving and investing and learning the value of every dollar earned, saved, and spent. That will be a pressure relieving strategy for both the parents and their children when they grow up.