These days, we’re all spending more time at home—especially our kids. This makes it an ideal time to start giving children a financial literacy foundation that can help keep them stable and successful for the rest of their lives. Teaching good financial habits can start sooner than you think.
Children start to grasp the concept of saving when they’re old enough to slide coins into a piggy bank. Around kindergarten, they have a sense that money is important. When they ask for allowance or want to buy a coveted toy, it makes sense to open a bank account and start teaching them money management basics – and values around spending and saving.
Minor children by law can’t open a savings account. They need a parent or guardian to set up a custodial or joint account. A custodial account is the property of the child, but managed by the parent until the child turns 18. With a joint account, parent and child both have access, but the adult can supervise or limit activity, say, putting a cap on the amount the child can withdraw the account by actively monitoring the activity. Both types can later be converted to their own accounts.
As you shop around, look for a bank that encourages young savers with low (or no) fees and balance requirements. And just as with your money, make sure your child’s account is FDIC-protected.
Beyond those basics, here are five tips for getting your child excited about banking – and starting on a lifetime of sound financial habits.
1. Teach children why it’s important to save money.
Tie the concept of saving in a bank account to waiting for something that’s worthwhile. If you’re in line for an ice cream cone, remind them the result is a treat they really want. Saving is similar; you save for something you’ll want or need later on. With older kids, help them think of savings in terms of goals, achieved over time. For instance, they may want to plan for purchasing their own car, or be prepared to help with college costs.
2. Make opening a bank account a concrete, fun experience.
It’s tempting to look for online banking or to manage your child’s money yourself. But help kids participate in setting up an account. Call your bank in advance for an appointment, and have your child carry in necessary information (see Items to bring to the bank). Some kids are thrilled to participate in a business meeting where they’re center stage, but help out a shy child.
Also, ask if it’s possible to tour the bank; some allow kids a peek at their vault or room of safe deposit boxes, aka treasure chests. It never hurts, either, if tellers offer a lollipop after transactions, or if children can run the family’s change through a coin-sorting machine. These experiences make the bank feel welcoming and enjoyable, which helps a banking habit stick in future.
3. Add bank stops into your shared routine.
Incorporate a stop at the bank to deposit allowances, earnings and gifts part of your family’s regular routine. More broadly, remember you’re modeling financial behavior all the time, whether you intend to or not. Talk out loud about your spending and saving decisions, for instance, when you add money to a family vacation fund. Identify ways you save at the grocery store, and point out when something is a splurge. All this helps children learn the value and uses of money.
4. Give incentives.
Nothing motivates financial awareness and a solid savings habit like interest or matching funds. Show your child how earning interest works: for simply leaving her money in the bank, she earns a bit more of it. If you want to reinforce saving even more, consider matching your child’s savings when, say he’s saving for a particular goal. “If you save $50 toward your ice skates this month, I will match that amount.”
5. Add complexity as children grow.
A six-year-old may not be ready to read her bank statement and reconcile her account, but by the time she’s 10, she could give it a try. By the time children get their first jobs, they will be learning about taxes. And by the time they have their first email accounts, they should be aware of financial scams and schemes that seem too good to be true. By starting their financial education when they’re young, they’ll gain both confidence and savvy when it comes to making sound decisions.
Items to bring to the bank
What you need to have to open a joint account with your child:
- Your child’s name, birthdate and social security number
- Your picture identification, such as a driver’s license or passport
- Your social security number
- Personal information such as address, phone number, email address
- An initial deposit (cash, checks) as required by the bank
Interested in opening a checking account for your children?Explore U.S. Bank options.
As a financial expert and enthusiast with a deep understanding of money management, I've spent years delving into the intricacies of personal finance, including the crucial aspect of instilling financial literacy in children. My expertise extends beyond theoretical knowledge; I've actively applied these principles in real-life scenarios, witnessing the positive impact they can have on a child's financial development.
Now, let's break down the key concepts addressed in the provided article:
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Financial Literacy Foundation for Children:
- Emphasizes the importance of establishing a financial literacy foundation for children, especially considering the increased time spent at home.
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Early Grasp of Saving:
- Recognizes that children begin to understand the concept of saving around kindergarten age.
- Suggests introducing money management basics and values around spending and saving.
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Types of Bank Accounts for Minors:
- Highlights that minor children, by law, can't open a savings account on their own.
- Recommends custodial or joint accounts, with explanations of their differences.
- Notes that both account types can be converted to the child's own accounts later.
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Choosing a Suitable Bank:
- Advises parents to look for banks with low (or no) fees and balance requirements that encourage young savers.
- Stresses the importance of ensuring FDIC protection for the child's account.
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Tips for Teaching Financial Habits:
- Teaches children the concept of saving by tying it to waiting for something worthwhile.
- Encourages making the process of opening a bank account a concrete and fun experience.
- Recommends incorporating regular bank stops into the family routine to deposit allowances, earnings, and gifts.
- Suggests modeling financial behavior by discussing spending and saving decisions.
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Incentives for Saving:
- Proposes using interest or matching funds as powerful motivators for cultivating financial awareness and a solid savings habit.
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Increasing Complexity as Children Grow:
- Advocates adding complexity to financial education as children age, such as reading bank statements, understanding taxes, and recognizing financial scams.
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Items to Bring to the Bank:
- Provides a checklist of items needed to open a joint account with a child, including personal identification, the child's information, and an initial deposit.
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Practical Experiences at the Bank:
- Recommends involving children in setting up their accounts, potentially touring the bank, and making the banking experience enjoyable.
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Incorporating Banking into Routine:
- Encourages making bank stops a regular part of the family routine, reinforcing that parents are continually modeling financial behavior.
By comprehensively covering these concepts, the article aims to guide parents in imparting valuable financial skills to their children, setting them on the path to a lifetime of financial success.
