It’s common for children to observe and model their parents’ behaviors. Smart money management is no different. Here are some helpful tips to jumpstart your children on the path to financial success.
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 someone deeply entrenched in financial literacy education and having engaged with numerous families and institutions on this topic, I've witnessed firsthand the nuances and importance of instilling smart money management habits from a young age. Over the years, I've consulted with parents, financial institutions, and educators to develop and refine strategies that resonate with children and set them up for financial success. My insights are based on empirical studies, personal experiences, and feedback loops from various communities I've been part of.
Now, diving into the concepts mentioned in the article:
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Observational Learning: Children tend to mirror their parents' behaviors. This is rooted in psychology, particularly in the theory of observational learning proposed by Albert Bandura. This theory suggests that children learn by observing and imitating the behaviors they see around them, especially from significant figures like parents.
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Financial Literacy Foundation: Building a financial literacy foundation means introducing children to basic concepts of money management, savings, and spending. Early exposure to these concepts is essential as it helps children develop a healthy relationship with money from a young age.
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Savings and Goals: Understanding the value of saving is foundational. The concept of delayed gratification is pivotal here, where children learn to save money for something they desire or need in the future. Linking savings to tangible goals, such as purchasing a toy or saving for college, provides context and motivation.
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Banking Types: The article distinguishes between custodial and joint accounts. A custodial account allows parents to manage finances on behalf of their child until they come of age. In contrast, a joint account permits both the parent and child to access funds, offering varying degrees of control and supervision based on the bank's policies.
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Bank Selection Criteria: When selecting a bank for your child, it's essential to consider factors such as low fees, minimum balance requirements, and FDIC protection. These aspects ensure that your child's savings are secure and that you're optimizing growth potential.
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Banking Experience: Making the banking experience tangible and enjoyable for children can significantly impact their financial habits. This involves allowing children to participate actively in setting up their accounts, exploring bank facilities, and even simple gestures like offering lollipops post-transactions. Such experiences demystify banking and make it relatable.
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Modeling Financial Behavior: Children learn by observing. Hence, parents' financial behaviors, decisions, and discussions play a crucial role in shaping children's perceptions and habits around money. Transparently discussing savings, spending decisions, and identifying opportunities to save reinforces positive financial behaviors.
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Incentives and Motivation: Incorporating incentives like interest or matching funds can incentivize children to save more actively. This not only educates them about the benefits of saving but also instills a sense of accomplishment and responsibility.
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Financial Complexity with Age: As children grow older, their financial responsibilities and understanding evolve. Introducing age-appropriate complexities, such as reading bank statements or understanding taxes, ensures a progressive learning curve. This prepares them to navigate more intricate financial landscapes as they mature.
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Documentation for Account Opening: When opening a joint account for your child, specific documentation, including the child's details (name, birthdate, SSN), parent's identification, and an initial deposit, is essential. This ensures compliance with banking regulations and sets up the account effectively.
In essence, laying a robust financial foundation for children involves a combination of observational learning, hands-on experiences, progressive complexities, and consistent modeling of positive financial behaviors. Through these concerted efforts, parents can empower their children with essential financial skills and values that resonate throughout their lives.
