5 tricks to teach your child great money habits

5 tricks to teach your child great money habits

We’ve come a long way from dishing out pocket money and hoping kids will spend it wisely. There are a number of lessons that children as young as three can be taught, and it’s up to parents to teach their children smart financial habits. 

RateCity has compiled a list of five tips and tricks to teach your child great money habits. 

  1. Use piggy bank apps 

For the kids who like a more tech-friendly approach, electronic “piggy banks”, or apps, are a great education resource. Children can benefit from visual learning tools, with apps helping them picture their savings goals, and guide them through how to balance earning, saving and spending when they engage with money.

Apps such as Spriggy automatically add up any pocket money you deposit, while making the educational process enticing for kids with lights and sound-effects. They provide a prepaid card that can be used as learning tool, preparing kids to spend money wisely through practical experience “all under your watchful eye,” according to their website. Parents have their own digital account they can use to “manage their children’s’ accounts, set pocket money, oversee savings goals, track spending, instantly transfer funds or lock cards in an emergency.” 

  1. Open a children’s savings account 

Children’s savings accounts can be simple to use and understand for both parents and kids. They can also be used for a number of educational purposes:

  • Teach your child about income – depositing pocket money regularly into their savings accounts paves the way for understanding the concept of earning income in exchange for services, such as chores.
  • Teach your child about budgeting – use a savings account to help show your children how to spend some money now, and save some for later.
  • Teach your child about interest – a savings account with a competitive interest rate is a simple way to teach your children harder financial concepts like how compound interest works. 
  1. Take kids grocery shopping 

If you want to avoid the tech, a simple task like grocery shopping is a great, real-life way to teach your children about budgeting and smart financial decision-making. Work alongside them to set a grocery budget and compile a shopping list. 

Once they’re in the store having a strict budget will help to teach them financially savvy habits such as not always choosing the more expensive, brand name item when you can choose a cheaper brand that serves the same purpose. 

Children may be tempted to buy toys or sweets. By reinforcing the idea of only having a set amount to spend you can help them to a) afford extras like lollies through smart budgeting or b) understand they can’t always spend money on treats and to be responsible in their shopping choices. 

  1. Create a savings goal tracker        

Setting a savings goal for a bigger item allows children to learn patience and forward planning. Create a savings goal tracker with your kid where they can colour in small saving intervals until they hit their goal. 

They’ll see their savings grow week by week until they can afford their wish list item, such as video games or a new bike. By having a visual reminder of their savings goal around them they’ll feel encouraged to save and not spend their pocket money right away. 

  1. Let kids overspend 

Letting children make mistakes with money is still a great way to teach them to not practice those bad habits when they’re older. It happens to the best of us, and if a child spends all their pocket money in one go instead of putting anything towards their savings, they’ll quickly understand that they’re now further away from their savings goal. 

You also may feel tempted to help them out, but fight the urge as it’s easier to break the habit of over-spending before they’re old enough to get into debt on a credit card.

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Learn more about savings accounts

How to make money with a savings account?

Savings accounts make you money by earning interest on your savings. The more money you deposit, the longer you leave it in the account, and the higher the account’s interest rate, the more interest you’ll be paid by the bank or financial institution, and the more your wealth will grow.

To make sure your savings account makes money and doesn’t lose money, it’s important to maintain a large enough minimum balance that the annual interest earned exceeds any annual fees charged on the account.

How to open a savings account for my child?

Some banks and financial institutions allow parents to open a bank account for their child as soon as it is born, and start depositing funds to go towards the child’s future.

Children’s savings accounts generally don’t have fees, and are structured to help develop positive financial habits by limiting withdrawals, encouraging regular deposits, and earning interest on the savings, similarly to standard savings accounts.

How much money should I have in my savings account?

A good rule of thumb when working out a minimum balance for your savings account is to make sure that you’ll earn more in annual interest on your savings than what you’ll be charged in annual fees.

If you’re saving with a specific goal in mind, prepare a budget so the interest you earn on your deposits will help you efficiently reach this goal. Online financial calculators may be helpful here.

Can you have a joint savings account?

Yes. Joint savings accounts can be useful for two or more people wanting to combine their savings to meet shared financial goals, including spouses, flatmates and business partners.

Some joint savings accounts require all parties to sign before they can access the money. While less convenient, this extra security can help encourage all parties to meet their shared financial goals.

Other joint savings accounts allow any of the account holders to access the money. These accounts can be convenient for financially responsible couples that trust one another implicitly. 

What is a savings account?

A savings account is a type of bank account in which you earn interest on the money you deposit. This makes it one of the easiest and safest investment tools.

Can you set up direct debits from a savings account?

It’s not usually possible to set up a direct debit from your savings account to cover ongoing expenses or bills, as savings accounts are structured around growing your wealth by earning interest on regular deposits, and discouraging withdrawals.

Some transaction accounts allow you to set up direct debits and also earn interest, though you may not enjoy as much flexibility as a dedicated transaction account, or get as high an interest rate as a dedicated savings account.

Can you set up a savings account online?

Yes. Several large and small banks offer online applications for savings accounts, and there are also online-only financial institutions to consider.

Online-only savings accounts are often less expensive than other savings accounts, though they may not offer the same flexibility, features, or face-to-face service as more traditional savings accounts.

What is the interest rate on savings accounts?

As banks frequently change their rates, the most accurate way to look at interest rates on savings accounts is to use a savings accounts comparison tool. When you look at the savings rate check what the maximum and minimum rates are. Often banks will offer you a promotional rate for the first few months which is competitive, but then revert back to a base rate which can sometimes be less than inflation. Ongoing bonus rates are often a safer bet as they will keep rewarding you with the maximum rate, provided you meet their criteria

Who has the highest interest rates for savings accounts?

As banks frequently change their rates, the most accurate way to know who currently has the highest interest rate is to use a savings account comparison tool.

What is a good interest rate for a savings account?

A good rule of thumb to keep in mind with savings accounts is to look for a rate that is higher than the CPI inflation rate. This number is constantly changing, so check the Reserve Bank of Australia’s page. If you aren’t earning interest above this then the value of your money will go backwards over time.

How do I open a savings account?

Opening a savings account is a relatively simple process. If you’ve found an account with a suitable interest rate, you’ll just need to get in contact with your chosen lender via a branch, phone call or hop online to begin the process. 

You may be required to provide:

  • Personal details, including identification (driver’s license, passport etc.)
  • Tax file number
  • Employment details

How does interest work on savings accounts?

The type of interest savings accounts accrues is called compound interest. Compound interest is interest paid on the initial deposit amount, as well as the accumulated interest on money you have. This is different from simple interest where interest is paid at the end of a specified term. Compound interest allows you to earn interest on interest at a higher frequency. 

Example: John deposits $10,000 into a savings account with an interest rate of 5 per cent that he leaves untouched for 10 years. At the end of the first year he will have $10,512 in savings. After ten years, he will have saved $16,470.

Can I overdraft my savings account?

A lot of savings accounts won’t let you overdraw. Some will allow this feature but you’ll need to apply first. It’s best to read the fine print and check with your lender whether this is a feature they offer. It can be a helpful addition, but as your lender can charge you a fee as well as interest for going into negative numbers, it’s best to avoid overdrafting when possible.

Can you direct deposit to a savings account?

Yes. You can make one off payments or set up regular direct deposits into a savings account. This can be organised easily through online banking or by making deposits in a branch. Talk to your lender to find out the easiest way for you to set up direct deposits.