Five ways to encourage young kids to save

Five ways to encourage young kids to save

Some of Australia’s youngest residents have drummed up some impressive savings habits, according to newly released findings from Roy Morgan Research. 

Close to three in four (74 percent) of individuals aged six to 13 years old have personal savings, with a combined $653 million in savings among this age group across the nation. Of this, 10.2 percent of these young savers have $1,000 or more stowed away in savings accounts. But others may need a nudge — 26 percent of children between six and 13 years old have no savings or are unsure if they do.

“There is obviously a major role to be played by parents to encourage their children to save but banks also need to play a role by providing suitable products and incentives,” said Roy Morgan Research industry communications director Norman Morris.

So how can parents encourage their kids to save now — potentially building better savings habits in the future?

Open a savings account

According to research from the Commonwealth Bank Foundation, 49 percent of those aged 20 or younger have a personal budget. This jumps to 71 percent by Aussies’ mid-20s and 78 percent by their mid-50s to 60s.

Why not start encouraging positive financial habits earlier in order to give kids a head start for those all-important financial milestones later on in life?

Open a savings account in your child’s name to encourage them. You could even open a high-interest savings account that discourages frequent withdrawals, while rewarding steady savings with bonus interest.

Match their savings

It can be tough for kids to save — if they receive a spot of pocket money each week and money for birthdays, they might be tempted to splurge this entirely on the latest gadgets.

But if you offer to match their savings dollar for dollar, they’ve got an incentive to put money in the bank, rather than spend it. 

Set up a star chart

Some kids will find it easier to save up for a coveted item if they can see their progress.

Rather than giving kids money for chores each week, you could add a gold star sticker to a chart they’ve decorated. Once they’ve collected a pre-determined number of stars, they get rewarded with the item.

This is a good way to impress upon kids the importance of not buying items impulsively.

Save as a family

Are your children keen to head to a theme park during the next school holidays, go on a beach trip or go mini-golfing on the weekend?

Talking about the cost of activities as a family and saving up together may encourage smart financial habits. It also encourages you to save up — you’re a role model for your kids, so take this in your stride and show them the importance of diligent saving!

Even if kids contribute a very small proportion of the overall cost, they can still be part of the saving experience.

Jump online

Finally, explore some of the money-saving games online, not to mention apps you can download to your iPad or tablet.

There are plenty of kid-friendly games that teach kids how to save in a safe, fun environment.

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Learn more about 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 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.

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.

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.

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.

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.

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 can I get a $4000 loan approved?

While personal loans and medium amount loans don’t offer guaranteed approval, there are steps you can take to help increase the likelihood of your application being approved, including:

  • Fulfilling the eligibility criteria (providing ID, proof of residency, proof of income etc.)
  • Checking your credit history (you can order one free copy of your credit file per year, and make sure that there aren’t any errors that may be bringing down your credit score)
  • Comparing carefully before applying (making multiple loan applications can mean having your credit checked multiple times, which can look bad to some lenders and reduce your chances of being approved by them)

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.

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.

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.

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

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 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.