BANK ACCOUNTS FOR KIDS
This is a great way to teach beginning investment (although not a great lesson in earning interest these days!). The first step is to check with your bank-of-choice to find out the minimum opening balance. Some banks allow a child's account to have a lower opening balance than normal. Also be sure to find an account that won't charge a fee for things like monthly service charges, low balance, withdrawals, etc.
It is a great experience for your child to be with you when you open the account. Our local bank did a great job walking our girls through the process and explaining how to balance the transaction book. Our girls were so proud when they handed over their Save It money bag and heard the praises of the bank employees (hey...I relish any and all outside sources of motivation as we try to raise fiscally responsible children!) Once you leave the bank with transaction record book in hand, take the opportunity to explain interest and how the bank "pays" you to have your money in their possession. You can take your child to make deposits in the account as often as you like. If your child is older and makes a larger commission, weekly deposits would be great. If younger, then monthly deposits would make more sense. Once your child has about $250.00 in the account, you can explore other investment options like mutual funds. See below for a calculator to teach your child the magic of compounded interest. Investment houses like T. Rowe Price, Edward Jones, ING, Raymond James, etc. can help your child with future investments. It's fun to earmark the mutual fund for something long-term (car, college, etc) and track it online.
Also check out the transaction books we sell at www.shop.fisher-kids.com. The registers are divided into three records: giving, saving, and spending. So when your child is wanting to keep track of the money in each of his or her money bags, just check the register to find out. It teaches how to balance a bank account without the full responsibility of the bank account just yet. They can also be personalized to match your child's personality, then stored in the chore bucket of the Fisherkids station. SO great.
TEACHING YOUR CHILD TO SAVE
It seems like all we do as parents is hand out money for our children's various endeavors, and although we are glad to do it, our children need to know the value of that money. It's our job as parents to teach our children to save money (and to give it and spend it, too!); they can even pitch in as they grow older and they gain more independence: cars, cell phones, insurance, college, etc. We aren't being mean by teaching them to save; we are doing our job.
"The borrower is slave to the lender."
"If I fish for you, you eat for a day. If I teach you to fish, you eat for a lifetime."
Saving is difficult for most of us, and we understand the demands life places on our savings account. So it's no wonder that our children find it difficult to save money. Children often need quick results to keep them motivated, so it's difficult to teach long-term saving, especially when they won't reap the rewards until much much later in many cases. But it is crucial to teach them how to save.
We have developed a system that makes it a little easier to teach our children to save. Our system teaches them also to spend and give, so they WILL have something in their hands to spend all the while still saving and giving. Depending on the age of your child, (s)he may also have difficulty with the WHY behind saving. Keep the explanations at their level of life experience; for example, our older girls have seen us go through a couple of cars....they know that we as a family have to save money for a new car, and they went car shopping with us so they understand how expensive cars are. But when our son was younger, he was clueless about the car experience, so we explained saving in terms of needing to save money in case we need to go to the doctor. Lots of other examples to give you, but hopefully that gives you an idea of how to explain WHY we save money to your child.
Future discussions will give you more ideas to teach saving, ideas for funds or bank accounts for your children, etc, but for now, let's start with just explaining the necessity of saving to our kids. The savings calculator above is a great tool for explaining the benefit of a savings account to older children (usually first grade and up). So sit your child(ren) down and explain the value of saving. Don't underestimate your children....they'll surprise you with their grasp of financial responsibility. And it doesn't even have to be the sit-down discussion....as you go through life on a daily basis, explain things (age-appropriately) you pay for in a give, save, spend dialogue. For instance, gas and insurance are spend items (and if there is any left over, you can save it or spend it on things like entertainment, etc), cars, trips, retirement, emergencies, etc are save items, and then church, museums, school fundraisers, etc are give items. Your child might grasp the day-to-day relationship to money easier than the hypothetical.
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