Over the past decade, educators and financial professionals have warned about financial illiteracy among the youth and the consequent effects. The Guardian reported in May that an OECD survey found that “22% had only the most basic financial literacy” and were unable to perform basic functions such as comparing the cost of loose tomatoes with boxed ones, never mind figuring out insurance or understanding the importance of saving.
Some public schools are offering financial literacy courses as a result. But it is you, the parent, who must play the largest role in educating your child about such matters. Setting up a savings account is an important step along the road, as it reinforces the difference between saving and spending.
But at what age should you set up an account? Here are some important tips on when to set up an account as well as how to teach your child to become a good money manager.
The Power of Money
Most banks will not allow a child to open a checking account until they turn 13. However, they will allow children to open a savings account at any age provided you are accompanying your child and have the appropriate identification.
Before you open up an account, you have to teach your child that money is real and is not just a number on a balance sheet. This is something even many adults struggle with. The New York Times and financial professionals have noted that people who rely exclusively on credit or debit cards are more profligate with their spending. It is easier to hand a card to a cashier which you will get back as opposed to physically losing your hard-earned cash. If adults have a problem with this, then we cannot expect children to avoid this trap unless we instruct them.
You are obviously not going to be handing your young child a credit card anytime soon. But before opening a saving account, have them save up their money in a clear jar where they can see the money inside grow as opposed to the classic opaque piggy bank. The kids can see the money grow and understand that it represents real value which helps them buy a toy or book.
Saving for a Goal
Your child should learn the real value of money around the age of 8 or 9. But understanding the importance of saving is another manner. Children famously have poor impulse control, and need a real, concrete incentive to save money.
Give your children goals such as suggesting that you will let them buy a new video game or a pack of Pokémon cards if they save up enough money before 7 years, and track how close they are to accomplishing it. Use visual aids like charts or tables to track how well they have done saving money. By making it clear that saving money is a good thing which will lead to valuable rewards in the long run, you will encourage them to treat the saving account as something valuable.
Going to the Bank
You can teach your children a great deal about financial literacy, but a banker obviously can teach kids even more. Going to the bank to create that savings account should be treated as a special occasion, and a sign that your child is becoming a big kid now.
Some banks work together with schools to help educate students, but you can take that one step further with individual bankers. When you and your child set up an account, ask the banker to give a lesson on how banks, money, and saving works.
Any banker worth his salt should be more than willing to give a lesson about what they do in their job and how your kids can save and invest to become great money managers. A friendly banker can also ease a child’s fears by showing that there is nothing wrong with giving their money to a banker.
Monkey see, Monkey Do
Lessons and goals are important things, but learning how to manage money is a constant process where kids will be watching you every step of the way. If you preach to your children the importance of saving but do not practice good money habits yourself, they will note this inconsistency. And actions matters more than words.
If you want your children to practice other money habits such as charitable giving or setting a wish list, practice these actions yourself in a way that your child can easily see it. Your actions are constantly setting an example for your child in every aspect of their lives, whether it is money or anything else. Regularly make a habit of placing money in a saving account yourself and show children that you are doing it, and they will try to do the same with the account you helped them make.