The earlier you start teaching your kids about money the better for you and them. Do not also think that they passed the age of taking money lessons either. What you teach them about savings accounts and the attitudes toward money will help them make better financial decisions in future. We have everything you need to know about how savings accounts can teach your kids about money.
The success of your kids in their financial life is reliant on a wide range of options including apps and money tools, but having a savings account is one of the most important to consider.
Teach your child about saving and help them create their first savings account. Talk to them about pursuing their financial goals with their savings accounts, and let them the most important things to put into consideration with their savings accounts.
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1. Saving for Short-Term and Long-Term Goals
There are two major reasons why you should teach your kids about setting financial goals. One, because it would help them understand the value of attaching a purpose to their savings. If you are saving just for saving, the act may lose value since no plan has been attached to it. And it may also be tempting to direct the money to unnecessary or avoidable demands.
In addition, when you set a goal for your savings, you feel motivated to achieve it, and would want to go the extra mile to do more. Your kids will also be able to imbibe certain money concepts, such as delayed gratification and the difference between satisfying needs and wants, and the effect in the long term and short term.
Engage your kids about saving money within the context of responsibly catering for little things for themselves. This could be from little things such as a toy from the dollar store, and to bigger items such as a new video game console. And if they have multiple things to target their savings towards, you could help them set up sub-savings accounts to make their multiple goals a reality. Find out with your bank if they permit it. With this method, they’ll have different savings “pots” that make it easier to focus on their multiple goals.
2. Deciding How Much to Save
When you engage your little ones about savings accounts and money lessons, you can also help them to make a decision on how much they should add to their savings.
There are two key things to consider here. First, how much to save for their different goals. Factors that may influence the final projection here include how long it is projected to take to attain their goal and how much weekly or monthly savings they can make.
For instance, your son intends to save $300 to purchase a new tablet, and he receives at least $40 per month as allowance and usually gets $50 for birthday yearly. If he is looking at acquiring the tablet in the next six months before his birthday celebration, and already has $10 to kickstart his savings, work out that with him to help him understand that if he is able to save his birthday allowance and all his monthly allowances, he would have successfully accumulated enough funds to make the purchase a reality.
However if he’s not interested in having all of his allowances locked up in a savings account, then he can prolong the buying time for the tablet to about 9 months. He will then have to reduce his savings to $28 per month, and his birthday money, and have a leftover of $12 each month. You can also consider several other workable options for them to help them understand what they’ll need to invest in regards to time and money to achieve their goal. This will help them make a suitable decision for themselves. However, avoid enforcing your own decision on them.
One other thing to note here is saving money for emergencies. If your kids are proactive in their savings, they will not have to worry about unexpected expenses. But adjustments would be needed as they grow older. They would learn to save for situations like when their pet falls sick and they need it to be quickly taken for treatment with the vet. They would have some cash to draw from. And in future, when their car breaks down, they will not have to depend on credit cards or loan platforms to fix the situation.
Acquaint yourself with your kids about why it is very crucial to have emergency funds. You may want them to learn from your own experience and how you were able fix emergencies without running to the bank for loans. For instance if you have emergency savings that are worth up to three, six, nine, or twelve months, you may want to engage them in your reason for choosing that number.
Leveraging the Power of High Yield Savings Accounts
While teaching your kids about savings accounts and money, ensure to let them also know about how they can earn interest on their savings to increase their money faster.
Talk to them about how compounding interest works, annual percentage yield for savings, and how to compare APYs for multiple savings accounts. Mention that high yield savings accounts typically generate higher rates than other regular savings accounts.
You can give some examples to let it stick better with them. Like you could talk about how much interest they could earn over the course of a year with a regular savings account compared to a high yield account.
For example, with a $1,000 deposit in a high-yield savings account with an APY of 2.05 percent, a $20.69 amount would be earned on interest. On a regular savings account, that figure with an APY of 0.01 percent would generate just a dime in interest annually. They’ll definitely want something much better.
You may also want to give more examples. Like explain how effective compounding interest can be in the long term. For example, $1,000 deposited for a decade in a high yield savings account would have grown to $1,227.31 even when an extra coin isn’t added.
Make Savings a Regular Part of Money Talks
Ensure to find ways to incorporate savings into a regular part of money discussion with your kids. This kind of discussion should revolve as they grow and learn the bigger part of handling money. And even as a very young child, do not hesitate to give them their own savings account to be able to put into practice everything you tell them, and stop them from overspending money on their wants.