How teaching your kids about savings accounts will help them develop good money habits
Allowing kids to earn money, teaching them good saving habits and then motivating them to spend it responsibly — these are all money lessons that parents can help instill in their kids, even as young as preschool age children.
“Learning ABCs and 123s are important, but teaching kids about money is equally as important,” said Rosanna Guardavaccaro, a financial adviser and author of "Peter Saves for a Rainy Day."
If you’re looking to start teaching your child vital money management skills, consider opening a high-yield savings account in their name. Credible can explain the process of opening a high-yield savings account via an online bank.
HOW TO MAKE MONEY USING A HIGH-YIELD SAVINGS ACCOUNT
Tips for teaching kids about saving and money management skills
There are lots of ways to teach kids good money habits. Below are some methods to consider:
- Make a “rainy day” fund
- Determine a short-term and long-term goal
- Start small — especially with little kids
- Match their savings
Make a “rainy day” fund
You can help kids set up a rainy day fund, Guardavaccaro said, which is money stowed away for unexpected expenses or challenges.
“Explain what saving for a sudden rainstorm means,” Guardavaccaro said.
If your child is currently in remote learning or you’ve lost a job due to the pandemic, you can relate this strategy to your current circumstances. If not, think about framing it around something the child finds dear — like their favorite toy or a family pet. If something were to happen to that cherished belonging, what costs would the family face? How could the child help?
Guardavaccaro said to explain to kids that “when the unexpected happens — like something breaking and needing to be fixed — then families need money to pay for it. And that’s why it’s important to have extra money in the bank.”
Determine a short-term and long-term goal
“Help your kids find a purpose behind their money,” said Shane Walker, founder of Qube Money. “First, identify what their goals are. Then identify if this will take a short-term savings strategy or a long-term savings strategy. Do they want to save up for something big? Small? Something for the future? Educate them on the ‘why’ behind savings and the reasons it is important for their future.”
Once you’ve determined their short and long-term goals, allow the child to earn money to achieve them. This gives them more ownership of their savings and instills in them a sense of self-confidence and pride.
Finally, stow the money away in a safe place — ideally, a high-yield savings account where the balance will grow more noticeably.
“Encourage them to forget about this money and consider it something they can have only in the distant future,” Pravin Chandrasekaran, BSA officer at Varo Money, said. “Put this money into a savings account that earns interest ... and help them learn how staying patient increases their balance over time.“
Applying for a high-yield savings account online is a simple process with sites like Credible, where you can explore your high-yield savings account options and compare APY rates in minutes.
3 REASONS TO OPEN A HIGH-YIELD SAVINGS ACCOUNT WHEN RATES ARE LOW
Start small — especially with little kids
According to Julie Beckham, a financial education officer at Rockland Trust, you can start teaching your kids money lessons very young. “Kids are naturally curious, so as soon as your children start asking about money, that’s your cue,” Beckham said.
If it’s preschool or elementary-school-age children, be sure to start small — “like saving for a week or two,” according to Beckham.
“Then allow them to use their money to buy something they really want after saving,” she said. “Acknowledge that it’s hard to wait to buy something and celebrate the accomplishment of delayed gratification. Once kids experience how saving works, they will be hooked.”
Match their savings
A great way to get kids to earn and save more is to institute a matching policy. You can agree to match their savings dollar-for-dollar, $0.50 to the dollar or whatever amount you feel comfortable offering.
You can also set rules for the account in exchange for your matched funds.
“Encourage saving by telling kids that you will match savings, but they cannot access it other than special occasions — like a birthday or twice a year,” Chandrasekaran said. “It helps teach the concept of how saving can earn you more money.”
How to use high-yield savings accounts
High-yield savings accounts can be a good tool to use when teaching your child good money habits. With a high-yield savings account, savings earn more interest than in a traditional savings account — which earns just 0.09%, according to the FDIC. This allows the child to more quickly see the results of their efforts.
Just make sure you’re actively keeping track of the account’s progress with them. You can even create a chart that shows their savings as it rises, a nice visual reminder of their hard work and dedication.
You should also show your child the simple math. If they invest $5 today, how much will it be worth in one year in the account? What if they invest $5 a week? Clearly map out the earning potential they have, as well as what they may be able to use those funds for down the line.
Credible can help you find a high-yield savings bank account provider and interest rates that will boost your savings. Check out what options — from each banks' minimum balance requirement to its APY — are currently available.
HOW OLD DO YOU HAVE TO BE TO GET A CREDIT CARD?
How to pick the right high-yield savings account
Be sure and shop around for your child’s account using a tool like Credible. Since APYs can vary widely on high-yield savings accounts, this can allow you to get the best rate possible and really maximize those interest earnings.
When comparing accounts, be sure to look at the APY, interest rate, minimum balance requirements, withdrawal limits and FDIC insurance. Any annual or monthly service fees should be noted as well.
If you're looking to teach your child about the importance of saving, check out high-yield savings account options on the Credible marketplace to help your child improve their saving habits and maximize their savings efforts.
HOW TO SAVE FOR RETIREMENT AGAIN IN 2021