Where should children save money?

August 16th, 2007 | by rachel |

NOTE:  This post addresses general savings options, NOT educational savings options.  Educational savings options will be covered in a later post. 

   Parents are responsible for teaching their children LOTS of things!  One of the major things children have to learn and understand is FINANCES.  In particular, children need to understand the importance of saving and “growing” money.  Not growing it on a tree, mind you, but growing it through budgeting and making wise choices.  Before parents can teach their children about the value of saving money, they should know what savings vehicles are available and appropriate for minor children.  Knowing these things will help them when it’s time to guide their children toward specific savings goals.

   To educate children about saving money, it is important to consider the philosophical AND mechanical aspects of the practice.  After all, many children that are starting to save money have never had a need (and probably a want) go unmet.  They don’t know what a financial “rainy day” is and they certainly don’t know how saving money will fix it.

   What should children know/have before they start saving money?

  • Children should have a basic understanding of what money is and the value of different pieces of money
  • Children should know that things cost money and they should know how to pay for something
  • Children should know that money has to be earned
  • Children should have a consistent source of income - work, allowance, gifts, etc.
  • Children should know that they need to store their money safely and protect it
  • Children should know how their parents think about saving and spending money
  • Children should know what a bank is

   There is no set time or age that is appropriate for all children to learn these things.  Parents need to use their judgment and introduce these ideas when they feel their children can understand these things.  A majority of parents will start giving children an allowance sometime between ages 4 - 6.  The amount of that allowance is not as important as the money foundation that is laid when the child starts receiving it.  There are lots of ways to manage an allowance/income for a child.  Ultimately, children should have some money values before they start making their own money decisions. 

What underlying principles should children think about when they start making money?

  • What will I use my money for?  giving, spending, saving, etc.?
  • When I spend money for myself, will I mainly purchase something I want or something I need?
  • What expenses should I budget for?
  • How often will I be paid?  Will the amount of my pay fluctuate?
  • Why am I saving money?
  • What are my savings goals - short-term and/or long term?
  • What is the best way to make my savings grow?

   As for the mechanics of saving money, children have many of the same options that adults do.  The limitations of these accounts, often, have more to do with the institution offering them than any legal considerations.  Before a child goes to the bank to actually open an account, parents need to investigate the possibilities and requirements to decide what type of account the child needs.

   What kinds of accounts are available for children under 18?

  • savings bonds - www.savingsbonds.gov
  • savings account - available at banks and credit unions - generally low interest
  • UGMA and/or UTMA accounts - these are either guardian or custodial accounts that allow children to “own” securities while they are still minors.
  • Certificates of Deposit (CDs) - available at banks and credit unions with somewhat higher interest rates than a regular savings account
  • IRA (traditional or Roth) - as long as a child is working and earning an income, they can start contributing to an IRA

   Are some financial institutions more “kid-friendly” than others?

YES!  Before opening an account for a child, it is important to contact various financial institutions in your area to see if they offer special accounts or features for children.  Many banks will require that a minor account have a co-signor for the account.  Often, credit unions offer special programs for young customers.  Also, be aware that there are some online options for children.  The sites listed below have information, products and special savings programs for minor depositors:

Early Earners (www.earlyearners.com)

My Nest Egg (www.mynestegg.com)

Moon Jar (www.moonjar.com)

PAYjr (www.payjr.com)

 

 

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