Step 1: Do your research when selecting a financial institution
When shopping around for the best financial institution for your child, look for the same things you’d look for in a financial institution for yourself: good rates and no fees. You want the best for your kid, and that applies to savings accounts, too. The better the rate, the more money your child will be able to save over time—that’s the goal, right?
It’s also important to look for an account that’s made specifically for kids. Sometimes, financial institutions (like us!) will provide learning resources for children, which is a great benefit to look out for, especially if, as the parent, you could use a little refresher yourself. Educational newsletters and events are a great opportunity to talk to your kid about finances and establish those good habits early, and they also take some of the weight off your shoulders so you aren’t the only one passing down the information.
Step 2: Choose an appropriate account based on the age of your child
When it comes to opening up a savings account for a kid, there’s a big difference between opening up one for a 5-year-old and opening up one for a 14-year-old. It’s important to choose one that matches the current needs of your child and that will grow with them. Here are the most common age groups or scenarios you might identify with:
The first is a family member or close friend giving savings accounts to children at a very young age—even as young as infants or toddlers. Think grandma sending $10 every month. It, of course, isn’t going to be used for quite awhile, but it’ll build up and earn interest over time, meaning when your child is older, they’ll have a nice little nest to start from. Thoughtful, right?
The second is for children who are old enough to make some decisions or be part of the learning process—we’ll put this at roughly ages 6 to 12. If your child is in this age range, you’re likely teaching them about saving by having them count their quarters for a special toy or treat. (This is the most common age group we see at Inspirus.) At this age, we recommend taking your kid into a credit union or bank, actually sitting down to talk with a financial rep, and opening up an account together, bringing them into the process and fostering a sense of ownership. This is also the age where those benefits like educational resources really help—newsletters and worksheets are great learning tools.
From age 12 and up, it’s less about instilling good saving habits (though that’s always a good thing to be working on) and more about instilling good spending habits and independence. Account drainage is very real, and it’s easier for them to do that when they have no-parent access to online shopping, trips to the mall or the movies with their friends, and, wait for it—driving.
It’s important to choose a savings account that matches the current needs of your child and that will grow with them.
Step 3: Open an account
This step will differ depending on where you decide to open up a savings account, but for the sake of this blog, we’ll tell you how to do it at Inspirus. If it’s at all possible (regardless of where you choose to open a savings account), do it in person. When you come into a branch, your child has the opportunity to be involved in the entire process, learn more, and familiarize themselves with the idea of a financial institution. They say experience is the best teacher, and this is a great way to start.
If you’re not near a branch, no problem. Just give us a call (888-628-4010), or apply to be a member online—it takes 10-15 minutes. Once you’re approved, all you have to do is fund your child’s savings account. If your child is under a certain age, you’re required to be a joint account holder, but it’s nice if your kid is older, too—it allows you to keep a helpful eye on how they’re saving and spending, and makes it easy to transfer money to and from the account.
Step 4: Establish good saving habits early
The earlier you teach your kids about financial literacy, the better habits they’ll have as adults—and the less stress and anxiety they’ll likely experience by feeling inadequately prepared. Here are some ways to start:
- When we think about learning how to save as children, we likely think of piggy banks. While piggy banks are a good way to learn how to save (there is something to seeing and feeling your money), they’re also a good way to illustrate interest. Or, in this case, lack thereof. The biggest benefit of a savings account is that it pays you. If you put $50 in your piggy bank and go back to check on it 10 years later, it’ll still be $50. If you put $50 in a savings account and do the same, it will have grown.
- If you do decide to use a piggy bank to teach your kid about money, look for one with three compartments: one compartment for saving, one for spending, and one for giving. It’ll establish good habits up front, and will teach them that when they want to spend money on a video game or a movie ticket, that they’d have to pull from their spending compartment—not their saving or giving compartment. You could even employ the same account-naming philosophy here and label the compartments with specific goals.
- Make a savings plan. If your kid is saving up for something, help them do the research. Once you know how much the item costs and how much they have to spend, you can help them figure out how to make enough money to purchase it. Maybe it’s saving part of their monthly allowance, maybe it’s getting a job, maybe it’s picking up some chores around the house—whatever it is, working through the process together is a great way to teach the basics. A good savings rule of thumb is 10% to 20% of each “paycheck.” We’re expected to put that amount into our retirement savings as adults, so teach your kids to start paying their future selves now—and watch as the power of compounding interest goes to work.
Like most things, learning about saving—and learning how to teach someone else about saving—is a never-ending process. Do your best, and if you need a little help along the way there are tons of resources out there (including our website and our Your Money Handbook blogs) that can help answer your questions.