Saving money is an essential building block to financial independence. This is why you should open a savings account for your child.
The earlier kids and teens start to imbibe the saving culture, the more likely it will become a habit.
What is a Kids’ Savings Account?
A kids’ savings account is designed for children under 18. The child and a parent or guardian act as joint account holders.
Most banks will automatically convert a child’s savings account to a regular savings account when the child turns 18.
Depending on your bank, there may be different fees, additional paperwork to sign or other decisions for your child to make.
Unlike regular savings accounts, children’s savings accounts often come with additional perks such as:
● No monthly account fees
● Low to no opening balance requirements
● Online learning tools to boost a child’s financial education
● Mobile apps so kids can easily view their accounts
Types of savings account for children
There are two types of accounts you can open for your child: a savings account or a custodial account.
With a savings account, you and your child will have joint ownership of the account, and your child will be able to access the funds with you, the parent, being able to monitor account activity.
On the other hand, a custodial account does not give your child access to the funds until they turn 18. It is also referred to as a Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA).
Money in the account is treated as a gifted asset your child fully owns.
Money lessons you should teach your child
Parents are often advised to shape their children’s attitudes towards money as they grow. One way to do this is by talking with them about proper finance management.
Managing your child’s savings account can be part of a larger discussion about debit cards, credit cards, auto loans or other financial products your child may need as they enter adulthood.
Some of the ways you can start your child’s financial education early include.
● The importance of saving money
The habit of saving money may be a crucial life skill, but it’s not one that always comes easy.
As a parent, you can help your kids imbibe a saving habit when they are young.
Teaching them about delayed gratification when it comes to money can help them guard against unnecessary spending and learn to value establishing control of their money.
Younger children might keep their savings in a piggy bank, but older ones might want to keep their money in a bank or on a debit card while working on their goals.
By teaching them how to save, children can learn the importance of living within their means, which is one of the basic tenets of saving.
● Wants vs needs
Explain that needs include the basics, such as food, shelter, basic clothing, healthcare, and education. Wants are all the extras—from movie tickets and candy to designer sneakers, a bicycle, or the latest smartphone.
● The value of earning
Parents are encouraged to pay their children an allowance or give them financial rewards when they complete their tasks.
Allowing kids to earn and save money provides them with the opportunity to learn how to use it. When you offer allowances in exchange for chores, they’re also learning the value of their hard work.
● Leave room for mistakes
Part of teaching kids about money involves letting them learn from their errors. It’s tempting to step in and steer kids away from a potentially costly mistake, but it may be better to use that mistake as a teachable moment. That way, they’ll know in the future what not to do with their cash.
● Act as their creditor
One of the basic tenets of saving is to not live beyond your means. If your child has something they want to buy and feels impatient about saving for it, becoming your kid’s creditor can help to teach a valuable lesson about saving.
Say your child wants to make a purchase. You could ‘lend’ them the money and require payment from the allowance that you provide, with interest.
The lesson here is that saving may mean delaying gratification longer, but its better because the item costs less in the end.
● Have the money talk
It is often said that parents don’t like to talk with their children about money. Some parents have even expressed embarrassment about bringing up the topic.
However, if you want kids to learn about saving, you have to nurture an ongoing discussion.
Whether you schedule a regular weekly check-in to talk about money or make money chats part of your daily round, the key is to keep the conversation going.
● Set a good example
More than just talking with your child or guiding them in their journey to financial literacy, you can also set a good example by showing them how you do it.
If you want your children to become savers, being one yourself can help.
Why open a savings account for your child?
Opening a savings account for your child comes with many benefits.
Other than being an excellent opportunity to show them how the banking system works, it also helps you save towards a particular life goal like education.
1. Set savings goals
A savings account teaches children how to set saving goals. Helping children define a savings goal can be a better way to teach them about money.
With a savings account, you could also show them how to break down their goals into manageable bits.
2. Provide a place to save
More than just teaching your child about money, you need to provide a place for them to save. That is where a savings account comes in.
For younger kids, this may be a piggy bank, but if they’re a little older, you may need to open a savings account for your child at a bank.
3. Track their spending
One very important feature of a savings account is that it helps kids track their spending.
Asides from earning and saving money, you also need to guide them as they figure out where their money is going.
If your child gets an allowance, having them write down their purchases each day and add them up at the end of the week can be an eye-opening experience.
If you are serious about protecting your children’s future, you can take advantage of the nairaCompare tool to find the best savings account designed for kids.
