The lessons we learn when we are very young are the ones we remember our whole life long. But when’s the right time for kids to learn about saving money and banking it so it can grow? How can you use it to teach your child the value of money and money management? Let’s take a look at kids, savings, and the ways parents can help prepare them for the responsibilities of personal finance management.
1. Make opening a bank account an event
By all means, start a savings account when your baby is born and salt money away for the future. This isn’t the same account as the one your child will learn to manage. Start simple with a piggy bank, and once the savings start to mount, it’s time to explain banks, banking and interest in detail. Kids will remember the first day they went to the bank with mom or dad to open their very first bank accounts. Keep it fun and exciting.
You will be in charge of the bank account until your child is 18, but that doesn’t stop you from giving him or her a savings account card to use. As parent, you will know when your children are old enough to understand the basics and start managing their own savings.
2. Let them save for short-term goals
To a kid, a whole year is a very long time – as for college funds, that’s so far in the future that it just won’t be “real”. When your child starts pestering you for an expensive toy, teach the value of money.
Saving up for the things they want, no matter how frivolous they may seem to you, will teach a valuable lesson in the value of money. Young as children may be, they will learn about opportunity cost. Sure, you can have an ice cream, but that means less money for your savings, and a longer time to wait before you get what you were saving up for.
3. Choose a bank account with no minimum balance requirement
Especially when they are very young, children will be starting out with very small sums of money. As children add savings to their bank accounts, they will be able to watch their money grow, but at some point, they’ll probably withdraw a substantial amount to get the “reward” they were saving up for.
As a result, you don’t want a bank account that expects them to have a minimum amount to keep it open. To begin with, the lesson of saving needs to be as simple as possible.
4. Ask your bank for an account without monthly maintenance fees
Again, you’re looking for motivation and simplicity. Kids are likely to be put off when they see their little savings being eaten up by bank charges even when they haven’t done any transactions. This means that you’ll probably end up choosing a credit union or an online bank. Credit unions also usually offer the best interest on savings.
5. Once the lesson’s learned, see if they’re ready for the longer-term view
Would your child like to choose higher interest on a longer-term fixed deposit account? As soon as he or she is old enough to understand the math, you can show how much could be saved by the age of 16 or 18, and how compound interest will grow the principal amount. Turn it into a game, with the growing bank balance as the way to keep score.
6. Check the figures together
Your child needs concrete proof of money growth to be motivated about saving. Check the figures every month, and point out how interest value grows with the value of savings.
7. Give them their first experience of online banking
Show kids how to interpret their bank statements online. It’s great practice for when they grow up! Encourage them to keep a folder with bank statements to track progress.
8. Keep it positive!
Your child shouldn’t be parting with savings money grudgingly. As a parent, it’s up to you ensure that it’s a positive life experience. Don’t expect a huge amount of responsibility and financial discipline at first!
9. Don’t top up on demand
The lesson will be spoiled if you’re ready to open your wallet on demand. Kids get just so much spending money. If they don’t save, it doesn’t grow, and once it’s spent, it’s spent!
As they become more responsible, you might want to give them their clothing budget as part of the finance package they manage.
10. Even when you authorize, let your kid deal with the bank
Let bank representatives talk directly to your kid when opening a bank account. You want your son or daughter to feel in charge of their money matters.
Banking on a brighter future
Teaching kids to save and manage their own money with your help is an important life lesson. Researchers say that kids who have their own savings accounts are far more likely to go to college one day, even when their savings are relatively small.
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