Sinking fund for kids: what you need to know

Sinking fund for kids: what you need to know


Teaching your kids how to save money is never easy, but setting up a sinking fund can help them understand the benefits,

What is a sinking fund & how to explain this in simple terms to kids? 

A sinking fund is a type of savings account used to save money for a specific large expense. For example, a new bike, a prom dress or even Christmas presents for your family. It’s an organised way of planning ahead for expenses you know are coming.


Related: Ways to teach your child how to save money


What are the benefits of a sinking fund?

There are several benefits to kids having a sinking fund:

1. It teaches kids how to save

Knowing how to save and plan ahead is an important part of money management. Setting up a sinking fund can show kids how to delay gratification and save money for something they want.

2. It reduces financial stress

Sinking funds can help to reduce financial stress and worry by allowing you to save money gradually over time for something expensive. Having a sinking fund  means that you won't have to scramble to come up with a large sum of money all at once.

3. Prevents borrowing

Sinking funds can show kids how to avoid future debt by saving for large upcoming expenses. 

4. Helps you reach your financial goals

Sinking funds show kids how to stay on track with regular savings  and achieve their goals faster.

5. Peace of mind

Knowing that you’re saving money for significant expenses can give you peace of mind and help you relax without worrying about a future expense.


How to create a sinking fund?

Sinking funds are a great way to help kids learn how to set savings goals and achieve them. Let's say your child wants to save up for a new bike that costs £100 but can’t see a way to get there. The answer is to create a sinking fund and show them how to regularly put £4 per week away. In 25 weeks, they will have saved up £100 to buy the bike.

To create a sinking fund:

  • Start by explaining why it is important to save money and how having a goal helps.

  • Look at the amount they need and decide how much money they should save each week.

  • Talk about how they can also choose to top up this fund from birthday or Christmas money.

  • Decide where and how they will save money. Will they physically put money into a jar each week or automate their savings to go from a pocket money account into a savings account? 

  • Encourage them to keep track of their progress to see how their savings are growing week by week.

  • Encourage them not to use this money for anything else, reminding them of their goal.

  • Celebrate their success when they reach their goals.



Different sinking fund categories

While the purpose of a sinking fund is to save cash for a specific expense, you can create different sinking funds to ensure money gets allocated to the areas that are a priority in your child/teens life. For example:

Special Toys

With certain LEGO sets coming in at over £150, and Barbie’s Dream House coming in at £130, a sinking fund for a special toy can be a good way to encourage  your child to save.


There are elements of self care that matter to teens as they get older, but they can be expensive. For example, getting hair coloured, nail extensions, even special haircuts at expensive salons.

Special Occasions

The average cost for a girls' prom is £400, whilst boys' proms generally cost about £240, so this is an ideal opportunity to establish a kids’ sinking fund.


Many fashion items have hefty price tags, from trainers that cost over £150 to Ugg boots, accessories and more.


New games consoles, video games and in-game purchases quickly add up to an expenditure of £300 a year for kids.


Whether your child wants a new bike, skateboard or even gym membership - a sinking fund is an excellent way for them to save up. 

Older teen needs

Whether they prioritise driving lessons, university costs, a car, or a holiday with friends, set your teens on the right track with their own sinking fund.


New laptops, phones, tablets , gaming screens are  expensive, so encourage your child to save for tech purchases.


Christmas is a good example of a sinking funds category that comes every year, so it gets your child used to planning for large, regular expenses.

Big events

Whether it’s a ticket to see their favourite band/singer, a ticket to a football match, or a gaming event they really want to go to, a sinking fund can help them get there.


How many sinking funds should a child have?

Realistically, it depends on your child’s age and income. For most kids it pays only to have one sinking fund at a time because it takes time to save up for large items.  For teens and those who have part time jobs they can have a number of the above categories.

Sinking fund vs. Savings Account

The main difference between a sinking fund and a savings account is their purpose. Sinking funds are specifically designed to save money for a specific purpose. Savings accounts, on the other hand, can be used for a variety of purposes, such as saving for holidays or just saving in general.

Sinking fund vs. Emergency Fund

The main difference between a sinking fund and an emergency fund is their purpose. A sinking fund saves money for a specific, known expense. An emergency fund is used to save money for unexpected expenses, such as when your car breaks down or you need to repair something unexpectedly.

What can children learn from a sinking fund?

A sinking fund teaches kids the importance of saving money. It also shows them how to set a goal, make a plan, and stick to it.


In terms of spending, a sinking fund teaches children the value of money and how to delay gratification by showing them how to save up for what they want. This in turn brings home the reality of financial responsibility, how to budget  and make wise financial decisions.


A sinking fund can help children develop their problem-solving skills. They can learn how to identify their financial goals, develop a plan to reach those goals and overcome any challenges they may face along the way.


Finally a sinking fund can help children build confidence in their financial abilities. When they reach their savings goal, they will see that they are capable of saving for big items even when they don’t have much money to start with.

What is the best way to manage a sinking fund?

The best way to manage a sinking fund is to be systematic and organised. Here are five tips:

  1. Set clear goals. What is your child saving for? Once you know this, you can help them calculate how much money they need and how long it will take to save it.

  2. Automate savings. Set up a recurring transfer to the sinking fund account each week. This will help your child to save money consistently without having to think about it.

  3. Track progress. Keep track of how much money has been saved and how much money your child has left to save. This will help them to stay on track.

  4. Encourage them not to dip into the fund. This will help them to reach their goal faster.


How can GoHenry help with saving?

GoHenry is a prepaid debit card and app designed for kids and teens aged 6-18. They can use the card online or in-store and set automatic savings goals. GoHenry comes with a companion app for parents, which you can use to transfer money, set spending limits and get real-time updates whenever your child makes a purchase. So while your child learns financial responsibility, you get peace of mind.

Written by Anita Naik Published Jan 12, 2024 ● 6 min. read