Why kids need to learn about money early
Teaching children about money is perhaps the greatest lesson parents can impart. Learning to read or how to bike is much the same, and kids can learn the basics of saving, spending, and budgeting. Opening a bank account in a child’s name can be the first step toward developing good financial habits that will serve them well for the remainder of their life.
These parents give their children allowances or cash they get on their birthdays and holidays. Instead of letting it just sit idle, it can be utilised to instil discipline and planning in children. A child taught how to manage money early in life will be better prepared to make financial decisions when grown up.
Starting with savings
The most prevalent type of account parents initially open for their children is a savings account. A savings account lets children see their money grow and understand interest. Some banks also offer special children’s savings accounts with no fees and low or no minimum balance requirements.
When you’re giving money to a child, educate them to save some of it. For example, you may request them to save 25% of their allowance and spend the rest. This teaches discipline but keeps them free as well.
Creating a simple budget
It’s essential to guide the children to make a saving and spending budget. You don’t have to use tough financial terminology—go simple. For instance:
- Save for the future: Money that doesn’t get spent and builds up.
- Save for goals: Money that’s saved for something special like a toy, video game, or sports equipment.
- Spend now: Money that they can spend on whatever they want.
Some banks provide even the option of having accounts separated into two “buckets” in one account—short-term savings and long-term savings.
Learning about spending
It’s crucial not to be too controlling of the way children use their allowance. If they want to spend it on junk food and toys, let them spend it. The most vital lesson is that money out is gone and won’t come back unless they get or earn more. Having this happen in real life allows children to have a sense of limits and prevents them from making poor decisions down the line.
The importance of goals
Children wonder, “Why save money at all?” The answer is simple: you save for the future and for things that you really need. For younger kids, that might translate to a toy or a bike. For teens, it might mean saving for a car or college expenses.
Assisting children to set achievable goals will teach them the importance of saving. Watching money accumulate over a period to reach a goal is powerful motivation.
Opening an account
At the right time, take your child to the bank and have their first account opened. Most banks require a parent or guardian to be a co-owner. This gives children a sense of responsibility without turning control over to parents.
You can also make it fun. Let them receive mail that is addressed to them, such as bank statements. Make a binder where they can keep their statements neatly arranged. This lets them be neat and proud of what they have achieved.
Joint account vs. custodial account
Parents typically have two main options when opening an account in a child’s name:
- Joint account: Parent and child both have the right to access the money. It helps in cooperation and responsibility.
- Custodial account: Parent maintains control over the money until the child reaches a specified age (usually 18 to 25). This gives them more control until the child becomes self-reliant.
The appropriate option varies based on your child’s maturity and age.
Adding a debit card
As kids grow up, you can also provide them with a debit card linked to their account. A debit card allows them to actually make purchases directly, so they learn to budget in real life. There are also parental-control cards where you can monitor spending.
But debit cards must be brought out only when kids demonstrate their responsibility. For younger kids, a savings account is enough. For teens, a debit card can act as a handy instrument to prepare them for adulthood.
Online and mobile banking
Children today are surrounded by technology, so it’s practical to introduce them to bank accounts via the internet or their phones. Some banks offer kids’ apps where they can check balances and see what they spend money on. This creates online financial literacy, something which is increasingly important in today’s world.
