There are a lot of money lessons you can teach a child. For example, a parent can teach a child to spend wisely, give to a greater cause and how to earn money. All of these are important.
However, you’ll often hear adults discuss the fact that they don’t have enough savings and perhaps you feel this way too sometimes. Many of us didn’t start saving early enough in life. When life happens you need money and a lack of savings can result in credit card debt, school loans, and just an uncomfortable financial position all together.
For these reasons, I’ve written parent’s guide for helping children to learn to save and also how to find a children’s savings account. The Capital One 360 Kids Savings Account continues to get my vote for the best children’s savings account for teaching kids the basics of saving and responsibilities for maintaining a savings account.
Best Children’s Savings Account
Capital One 360 Kid’s Savings Account- My favorite account is the Capital One 360, previously the ING Orange for Kids, online savings account. They currently offer a competitive interest rate so your child can really see their earnings grow. This account doesn’t have fees or minimums which is ideal when opening a children’s savings account. Kids have a lot of options such as the ability to access the account online, checking their balance, change their personal information, download account history and more. Parents can do everything a child can do but also transfer money and set up an automatic savings plan. You can deposit money via check, cash, automatic savings plan or transfer funds.
Reasons to Open a Children’s Savings Account
1. Saving Money 101 – Opening up a children’s savings account is a great way to teach your little one saving money 101. Take a portion of their allowance and show them how to deposit it into a savings account. Explain to them the reasons why we save. Help your child understand he or she might not have enough money today for a toy or desired item. Your child needs to learn to save money until he or she has enough to purchase the item.
Also, there is a valuable lesson in teaching your child to prepare for the future. Help your little one understand that it’s important to save in case money is needed later. A good example might be in helping your child understand how unexpected situations, such as having a flat tire on a bicycle, can cost money. Having adequate money in savings let’s you replace the tire when the incident occurs. The child certainly won’t miss out on a day of riding his or her bike if there is enough money to fix the flat.
2. Save for a Car or Big Purchases – As children become older then no doubt will think of the day they can drive off in a car with their friends and experience a new kind of freedom away from mom and dad. A parent has a great opportunity to help coach their child into saving for a car and at least make a significant contribution by earning and saving for this big and worthy goal. The child will be able to see the savings earn interest as the account grows larger and appreciate the vehicle more having purchased it, or by making a significant contribution towards the purchase.
3. Learn About Interest – Opening up a savings account presents a great opportunity to teach your child about interest and how their money can earn money. Obviously, this might not register with a young one, but as a child gets older he or she can begin to understand that the bank pays them to keep a savings balance in their bank. Compound interest is one of the greatest lessons in savings and they will take those basics with them some day as they make bigger decisions to invest for retirement in the stock market.
4. Managing a Savings Account – Finally, learning to manage a savings account is a great benefit in opening up a savings account for your child. Management of the account might include checking the balance, helping mom or dad transfer money and making a withdraw. In regards to making a withdraw, the child should understand the balance and help mom and dad calculate what the balance will be once the withdraw is completed. In other words, they child should learn to make sure he or she has enough money in the savings account to make the withdraw. And lastly, a child can learn how to use an ATM card to withdraw money.
Teaching Children How Savings Accounts Work
While it may seem like personal finance 101 to mom and dad, understanding how a savings account works is still important to teach children. The primary benefit of having a savings account is for children to contribute money towards a savings goal each month and see their money earn interest. They learn the importance of saving money versus spending all their money.
Depending on the age, children may not understand the business part of banking and that’s okay. If you want to cover this topic with your child, you can share with them that interest is the money the bank pays us to help fund loans for other customers. The bank is basically selling money to people to use for building homes, buying cars and other needs. The difference between the interest they pay for savings and the amount of interest they charge other customers is primarily how banks earn money as a business. Older children can begin to understand how this works.
However, most children will be more receptive to the fact that they are getting paid to put their money in savings. Obviously, this payment comes in the form of interest they earn and it’s normally compounded on a daily basis and paid out to them monthly. Help them understand that the great thing when it comes to compounded interest is the bank is basically paying interest on money that they’ve already paid in interest. This is why it’s better to keep their savings in a savings account versus in their dresser drawer as they get older.
What to look for in a Children’s Savings Account
If you’re considering opening a children’s savings account, you need to know what to look for. I think it’s easiest to keep the below things in mind. There’s no secret formula, but there are some nonnegotiable things to consider.
No Maintenance Fees - The best children’s savings accounts are accounts that have no maintenance fees, regardless of the child’s account balance. Not all children are able to deposit on a weekly basis, so making sure that the money they do deposit is not going to be eaten up by monthly fees is important. Also, make sure there are no inactivity fees if you don’t do anything with the account for a few months. Ask your financial institution to wave fees if they exist and take your business elsewhere if they won’t!
No Minimum Balance Requirements - Make sure that there are no minimum balance requirements. This should go hand in hand with not having fees, but there are accounts that offer no monthly fees as long as a minimum balance is maintained.
No Deposit Limits - Since this is a children’s savings account, make sure that there are no limits to the amount of small deposits. Children should still be able to make deposits even if it’s just a few dollars.
Competitive Interest Rates – Interest rates are actually important because your child needs to see that the savings account is earning money and they are getting a reward for their hard work. That’s why I like online savings accounts the best (more below). While these accounts don’t need to pay the highest of rates (again, this is about education for younger children) there should be a good enough rate to for the account to earn a little bit of money. Seeing an account balance grow may also help to initiate conversations with your child about how compound interest works.
Age – Obviously your needs for the account will differ based on the age of the child. Older children may be making deposits and saving for college, or other larger savings goals. Younger children may be learning the basics of saving and withdrawing frequently (such as once a week) to buy toys with money they’ve earned with their allowance. You might even deposit gifts for babies. Consider your specific situation and age of your children before opening the account and make sure the account features and requirements are in sync. Also consider what will happen to the account when the child turns 18. Some banks convert their children’s savings accounts directly to an adult or a regular savings account. This is typically fine, but know how it works before signing up.
Special Features - A big part of your job as a parent is teaching your children how to save and the importance of doing so. The bank should partner with you in doing this. Check to see what banks offer in terms of special features for a children’s savings account. Some offer gifts upon opening the account, piggy banks, birthday certificates on the child’s birthday each year and more. Some institutions go above and beyond and provide educational tools for children to learn about money and savings. Banks can also help adults learn how to educate their children. All of these features can make for a positive experience for the child and adult.
No Withdrawal Limits or Penalties - Depending on the age of the child, there may be times when they want to withdraw money to purchase a toy or something they’ve been saving for. Be sure to ask if there are withdrawal limits or penalties. It’s not bad if there are minimum withdrawals, as depositing money into savings is the practice you want your child to get into rather than withdrawing money all the time. There is nothing wrong with them taking money out for a savings goal.
User Friendliness – Whether you choose a brick and mortar bank or online bank you’re probably going to be spending some time online looking at the account and transferring money. It’s absolutely essential the online features are easy to navigate and understand for your child. The screen shouldn’t be full of too many links and useless information. The buttons and text should be larger in size and easy to read. Banks who really care about the learning experience for children will have invested in the online experience, specifically, for kids.
How to Teach Children to Save Money
All of us adults know what it means to save money. However, it’s another story as to whether or not we save diligently from our paychecks each month. Somehow, someway you learned about saving and now you want to pass along important savings principles to your children. Why? If you’re like many people, you got a job in the real world without much savings in the bank account. You might have had school loans or credit card debt. Maybe you owed on a new car too! You eventually became more wise in your ways and realized it was a good idea to have an emergency savings account with 3 – 6 months of living expenses to protect against financial storms.
Wouldn’t it be great if your children could start off with savings instead of debt? It’s never too early to start teaching children to save money.
The best way to teach children to save money at this age is to use piggy banks. They can start to understand the basic concepts of saving by seeing that the money is placed into the bank and taken out later. It basically serves as a game for them that should be fun and interactive. You can sit down with your child and show them how to put the money in the piggy bank and then take it out later. There are a lot of piggy banks in different colors, shapes and sizes that can make the experience a lot of fun. You can even buy a bank and have your child paint or decorate it themselves. The bottom line is to make the process of learning about saving fun for them.
Elementary to Middle School Saving
Our daughter is in elementary school and she now understands how money can be used to buy, save and give. Unfortunately, she hardly wants to save right as buying with some of her earned money is a lot of fun. Children at this age also understand the idea of earning an allowance when they do a special job or chore for mom and dad.
As your child reaches this age they need to start learning to save for some goal. For example, they might save a portion of their money for a big toy they want to buy such as a new bike or doll. Through this process they learn that they can’t have everything they want and they must save until they have enough money to buy the item.
Children can also begin to understand the idea of having a children’s savings account and that their money can earn money, or interest while in the account. The basic ideas behind a piggy bank built for giving, saving, spending should still be used but a child can get creative and use envelopes, jars, or whatever is most fun for them in managing their money. When the savings jar is full the money can be taken to the local bank and deposited or an adult can deposit the money for them via a transfer out of their own checking account based on the amount saved. Overall, this is a perfect opportunity to start getting children used to viewing their own savings account online and see the balance and the interest earned.
How Children can Earn Money for Savings Accounts
Teaching children to save is just part of the picture. It’s also great to teach them how to earn money for their savings account. Most kids are going to want to find ways to get more money once they get excited about saving money.
There are many, many ways kids can make money for savings goals. Your job as the parent is to guide them and teach them how to earn and not give them everything they want.
Below are some suggestions for what a child can do to earn money at certain ages:
- Doing odd jobs around people’s yards is a great way for the younger children to earn money. Most children, at least 12 years old, can rake leaves, shovel snow, pull weeds, sweep walkways, and as they get older, mow and trim hedges.
- Dog walking, dog bathing and even dog sitting are jobs that a child 10 and up can do with parental supervision.
- Helping the elderly is another way children can make money to put towards their savings goals. Most elderly love being around children, and having them do jobs like yard clean up, washing cars, household chores and plant care is rewarding for them as well as the child. It teaches children to be respectful and helpful to their elders.
- Other ideas include lemonade stands, selling crafts, selling cookies, and even more intensive jobs for the older child such as starting their own business.
Online or Traditional Children’s Savings Accounts
There a few differences between online accounts and traditional accounts that should be considered.
Higher APR – Online savings accounts can offer much higher (APR) or Annual Percentage Rate on your savings accounts. The reason that online banks have the ability to require no minimum balances, charge a lot less in fees and offer better interest rates is due to the fact that they don’t have the same costs as traditional banks, such as maintenance costs, wage costs and real estate costs.
The higher interests provide children the ability to see better results for their deposits. This is definitely worth considering.
Deposits – With online savings accounts you’re not able to make deposits at a local bank. If you want to deposit money, you’ll have to physically mail a check to your online bank’s main office, or deposit your check in your checking account before transferring the money online to your savings account.
This additional work can take the fun out of it for children as they typically want instant gratification of seeing their savings in the account.
People – While adults may not care about going into banks to make deposits these days, doing so can be a big deal for a child. Children feel important and can learn more about the banking process by going to a bank in – person. They may also get a treat which motivates them to come back more often with their deposits.
My personal preference is to open an online savings account just because the interest rates are higher and I conduct all of my banking online. That being said, there are some good reasons to go with the traditional route for children.
Steps to Open a Children’s Savings Account
1. Shop for an Account– As mentioned before, you’ll want to compare options available and make sure you’re looking for a bank with the nonnegotiable items I previously mentioned. Look at the savings rate, minimum amount required in order to open the account, what type of minimum must be held in the account (hopefully none!) and any other types of fees that are associated with the account. Include your child in the process of trying to find an account and compare the options could be a good learning experience for them.
2. Pick a Director – The second step is to pick a director for the child’s account. Anyone who is under 18 years old will need to have a director listed on their account. This person has access to the child’s account and is able to make all of the decisions relating to the account till the minor turns 18 years old. At that point in time, the responsibility is transferred to the child.
3. Open the Account – Open the account with your child. This could include heading out to the bank and visiting it in – person or signing up online. You’ll want to make sure you have your child’s social security number and date of birth, along with your information too. Make sure you have you checking account number and routing number for direct deposits and to fund if opening the account online.
4. Make the First Deposit – The next step is to make the initial deposit. Make sure the child is involved in this part of the process and don’t forget you’ll need to have at least the minimum amount of money required in starting the savings account. If you’re depositing at a bank, have your child be the one to give the deposit slip and money to a bank teller. Once your child has gotten their receipt, their savings account has been officially opened and can begin earning interest. Celebrate this milestone with your child!
5. View the Account – Finally, take time to sit with your child and view the account online. Browse around and show your child the transaction history, how to view any interest that’s been earned and any special account features or educational tools.
Overall, my recommendation is to find a children’s oriented savings account that can be the most fun for kids and provide resources necessary to teach kids about money and savings. Make sure you provide your child with plenty of encouragement when they reach their savings goals. Your child will be pleased with what they’ve accomplished and begin to learn the importance of saving as they get older and approach the teenage years.
Also, remember to be consistent as a parent. Don’t always give into a child’s wants if they haven’t saved enough money. Children need to learn at a young age they must earn to obtain money and must save to buy things they want. Eventually, the value in saving will come naturally as they manage their first paychecks during the teen years.
A good children’s savings account is merely a tool to help you guide them along the way.