A kid’s job is to grow up happy and healthy, while developing the skills needed for everyday life after childhood.
Part of this development is learning about money and how to use it responsibly. So, what’s the best way to teach your kids about money?
An easy way to start is with a savings account designed for children. These types of accounts make saving easy while the child is very young, and grows alongside them as they get older. Here are a few ways kids can benefit from having a youth savings account.
Learn Personal Finance
One of the most useful pieces of knowledge you can pass on to your child, are the basics of managing money. Having a savings account for children can teach them the basics of personal finance. Like most of us, it’s easier to learn something if we have a good example. While your budget may include bills, groceries, and a mortgage payment, children can learn from how you manage money.
At a young age, kids can write out a budget that includes gifts for family members, toys, and adding to savings. It’s also important for kids to understand wants versus needs. They may want a new toy, but need new tennis shoes. Consider having your child make a list of what their needs and wants are, and go over it together. This is a good opportunity to discuss the difference between these items, and how to use money to first cover ‘needs,’ then budget for ‘wants.’
If your child has their eye on a more expensive item, like an electronic, come up with a plan for purchasing it. How much does it cost, and how much will they need to save in order to buy the item? Setting a goal, staying on track, and achieving the goal are powerful lessons for children that will likely stick with them into adulthood.
Typically, when they are young, the only source of income for children may be an allowance. Consider turning an allowance into a “paycheck” a child can receive for doing chores or helping around the house.
As kids grow, they may start babysitting, mowing lawns, and eventually get a job. Start by having kids keep track of any income, then set aside money to save and spend. As kids start to earn more money, it’s important to have an understanding and foundation of how to handle it.
Teaches About Saving
Saving money can help children learn about income and expenses, and setting saving goals allows kids to understand how different items cost different amounts. Anytime your child receives money, whether it’s from doing chores, an allowance, or gifts, teach them the idea of “paying themselves first.” This saving strategy works by treating their savings account like a “bill” they need to pay regularly.
As a result, the strategy gets kids familiar with the idea of saving, paying bills, and can teach responsibility to pay their “bill” on time. Saving regularly is a good habit to start, especially during a child’s formative young years. By understanding how to save, kids can develop a respect for money as a tool.
In addition, the more your child can save, the more interest they can earn. Having a savings account can open the door to explaining how interest works. When it comes to saving and earning interest, the savings account will have an interest rate, which is the rate at which you’ll earn money just for keeping a balance in the account. Small amounts can add up over time, resulting in a significant amount of money.
Keeping Track of Money
As you probably know, managing money takes attention, planning, and self-discipline. It’s never too early to start teaching and showing kids how to keep track of money. A youth savings account is a safe way to start, since these types of accounts are usually designed for saving long-term. As your child grows up, these types of accounts can switch to a savings account your child can use during their adult life.
Teaching kids to know where all of their money is, even if it’s just collecting interest in the savings account, is a good practice for their future. Oftentimes, it’s easy to passively keep an eye on account balances, but encourage kids to be active with their finances. It’s helpful for kids to know how much money they have saved, how much interest they’re earning, and how close they are to meeting any goals.
Builds a Strong Foundation
Having a good relationship with money will benefit your child, especially as they grow into successful contributors to society. Right now, you’re helping your child build a foundation of independence and smart financial decisions.
While it may seem far away, your child will eventually face decisions about saving for retirement and buying a home. Giving them a strong, solid understanding of money is valuable in every stage of life. Overall, providing a good example and being open and honest about how money works will benefit your child.
Want more tips for managing your family’s finances, or planning your next family vacation? Check out these Life Events for Families to learn about hidden costs of having a baby, creative date night ideas, and how to plan for kid’s college expenses.