In my previous posts, I discussed allowances and ways to creatively pay your child. For this article, I want to bring up the importance of opening a bank account for your kids as early as possible.
Here are some arguments why opening a bank account for your kids early on is one of the best things to do:
It’s A Great Way To Get Them To Start Saving
It’s a great way to start teaching your kids how to save, especially for the long-term.
When you open the bank account with your kids, make sure to let them know why the bank is the best place to keep the money. Ask the bank teller to explain to your child what a bank does and why the child’s money is safest there. Most banks have children account packages of some sort that allows children to engage in a playful yet serious way. And whether they receive a savings booklet or an account card, make sure they know this is theirs and that you are the guardian of it for them.
Tip: Use the bank visits as money moments for the kids!
As I mentioned in my older post, use every moment you can to teach your kids about good money habits. Taking them to the bank is a good one.
While money on an account might feel a bit abstract, make a point of taking your child regularly (at least twice a year, better if once a quarter) with you to the bank to deposit money from their piggy bank. Help them count the money and then let them hand over the savings book to the teller. This way it makes the banking experience a bit more tangible. And you can show your child how their savings are growing over time. So whenever you can, take your kids with you to the bank. Especially if it’s their account you’re going to deal with, make sure the kids are with you.
What About ATM cards?
I know ATM cards are the norm nowadays, but I recommend that for younger kids, you need to use passbooks first.
With a passbook, you can easily see how money goes in and out of the account. Everything is recorded and kids can see how the money adds up every time they make a deposit. Besides, there’s no need for an ATM for kids when they’re young anyway. They will not need to spend money on big-ticket items, which is very irresponsible.
You can consider giving them an ATM card or a prepaid card when they’re older and are more responsible with money. By the time they’re old enough to own an ATM card or a prepaid card, they’re mature enough to be responsible spenders.
Start Early, Compound Early
Opening an account for your kids is also a good way to to start taking advantage of the compounding interest in banks, if your savings account still has a positive interest rate – which is admittedly becoming a rarity nowadays, as interest rates are negative in many countries. Nonetheless, If you start putting money on their account from a very young age and don’t withdraw from it, imagine how much your kids will have accumulated by the time they’re 18! And if you discuss with your bank how best to invest these savings, you can certainly benefit from long term market developments despite the short term ups and downs..
In fact, especially for long terms savings that you do not need to draw upon in the short term, investing is the best way to achieve a positive compounding effect over the years. Make sure you explain to your child that this is how their money is “working for them” by circulating in the economy, and this is how it generates a return. That will encourages them to continue saving up over the years.
Opening A Bank Account Is Signing Your Kids Up For Success!
One of the most important pros that I can point our for this is the positive effects on a child’s development. Studies on Oklahoma’s (United States) Child Development Accounts (CDA) program “shows that creating lifelong savings accounts for children at birth promotes their long-term well-being”
The hypothesis was that CDA and other similar asset holding or building accounts would positively affect a child’s well-being and development. The study showed that kids who had money deposited in a special education savings account had better social and emotional scores compared to those who didn’t.
You see, this becomes a domino effect for the kids and the expectations we have for them. Opening a savings account increases your confidence and support towards the kids. If you open an education fund for the kids, then it already creates a sense of expectation towards education. With that, parents will tend to encourage their kids to excel or do well in their studies.
The Sooner The Better
I don’t see any reason not to start very early with opening a bank account for your kids. It’s one of the most important things to tackle, in order to nurture good money habits.
If we want our kids to grow up forward-thinking, financially responsible, and financially literate, then banking is one of the most basic things that we can do for them.
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