When it comes to raising kids and instilling them with the right values, the old axiom, “Actions speak louder than words,” has no greater context.
Money issues are, perhaps, the most perplexing for families to deal with. Parents have a short window of opportunity to pass on both the lessons and values that will carry their children into adulthood.
Yet, it’s also the one aspect of family life where they are more likely to say, “Do as I say, not as I do.” When that happens, kids have a greater risk of joining the ranks of financially illiterate young adults.
Financial Literacy Through a Bank Account
One of best ways to introduce basic money concepts and financial responsibility is opening a savings account for kids. For children under 14, who typically don’t need a checking account, a savings account would be the best option. In addition to being a fundamental financial management tool, it offers a real world opportunity for kids to learn the value of saving and planning for the future.
The best time to open a savings account for your child is when they first take an interest in saving money. If, through their allowance or neighborhood jobs, they begin to accumulate small sums of money, they are ready to take the next step. While you can open a savings account for children online, you can make it more of a momentous occasion by opening an account in person at your local bank branch. It would be important for your kids to see the inner workings of a branch and who will be taking care of their money.
How to Open a Bank Account for Your Kids
Opening a savings account for your child where you bank would be ideal, but it would be important to make sure it offers kid-friendly savings accounts. Essentially, kid-friendly means an account with low or no fees because many savings accounts have minimum balance requirements that your child probably won’t be able to meet. The account should come with online access, allowing you and your kids to monitor the account together.
To open an account for your kids, you will need to provide the following:
- Your child’s date of birth and Social Security number
- Your driver’s license or some other form of government-issued I.D.
- Your date of birth, address, phone number and email address
- An initial deposit
As the legal guardian, you will be asked to sign the account agreement on your child’s behalf.
Since savings accounts don’t usually come with a debit card, the only way to make a deposit is by visiting the branch. The representative opening your account will take your child through the steps of filling out a deposit slip. The bank can also show your kid how to access his or her account online and through a smartphone app. That will raise his or her interest level to even greater heights!
Using Your Kid’s Bank Account to Instill Good Money Habits
With a savings account for your children in place, you now have a golden opportunity to teach your kids the true value of money. Here’s how to use the account as a way to instill a lifelong saving habit.
Set a Monthly Savings Goal
Kids are always up for a challenge, especially when they are rewarded. Based on your child’s ability to accumulate money – through an allowance or neighborhood jobs – have them set a monthly savings goal. Set a date each month when they will take their savings to the bank and deposit it. They will look forward to that date each month.
Offer Matching Funds
Your employer may do it, so why not you? Offer to match all or a portion of their savings if they hit their goal. Or, you can tie it to school performance by offering a match when they earn good grades. When they see how their savings grow much faster, it will motivate them to work harder.
Teach Them the Magic of Compounding Interest
If your kids know who Albert Einstein is, ask them to name what he once called “the most powerful force in the universe.” That should get their attention. They will probably be dumbfounded when you tell them the answer – compounding interest. Explain why and what it means to their financial future.
A fun way to do that is by offering them a hypothetical choice between a gift of $1,000 in cash each day for 30 days of a magical penny that doubles in value every day for a month. When given the choice, even some adults will make the seemingly obvious choice of the $1,000 a day. But it will blow them away when you tell them that a penny doubling in value every day for 30 days will be worth around $5 million. That is the awesome power of compounding.