Money savvy tips to teach your tots

Money savvy tips to teach your tots

Deciding when and how to teach your kids about money can be tricky.

While you don’t want to give the impression that money is the most important thing in the world you do want to make sure your children have a good understanding of how to use it responsibly. Habits learnt in our childhood often stick with us throughout our life so here are a few simple tips to help you ease your young one into the world of money.  

1. Do you really need another toy? 

Explaining the difference between wants and needs is one of the first step towards learning about money. It may sound simple but it almost certainly won’t be straightforward to your pre-schooler who is convinced they need a new toy every week.

Start with something basic like food or clothes and explain how both are necessary to survive. While it may be difficult to grasp at first, kids are great learners and will soon catch on with a bit of repetition.

Try and incorporate the words into everyday life by asking if something is a need or a want when shopping. Explain that we have to buy the ‘need’ items before we can by the ‘wants’ with the money left over.

2. Keep it real

Using real life situations is the simplest and most effective way to teach young children valuable money lessons, even before they are old enough to count.

Show them how much $5 can buy in a grocery store, or as they get a little older, compare cheaper and more expensive options of the same product and let them help find an item for the best price.  

When you next withdraw money at the ATM, explain that it’s the money you earned from working, not a magical box that gives out cash.

There’s lots of good examples you can use at home too; show your child the electricity and internet bills to demonstrate that all things cost money.

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3. Start saving for a treat 

Introducing a savings goal for an item that your child wants is a good way to show them how saving can pay off in the long term.

Start by implementing a pocket money system and give them a dollar for each chore they complete such as packing up their toys. Encourage them to put the money in a savings jar or a good old fashioned piggy bank.

You could also offer to match their savings dollar-for-dollar as a further incentive to get them going. Explain to them that forgoing short term pleasures like lollies or small toys means that they can get that big ticket item they want sooner.

4. Paint by numbers 

Once your child has a savings goal, help them visualise the process and keep it fresh in their mind. Drawing a chart that they can colour in when they reach certain milestones will give them a clear picture of their progress and keep them motivated.

For the more tech-savvy child there are electronic “piggy banks” on the market that automatically add up the money you deposit and include lights and sound-effects to make the whole process extra exciting.

5. Open their first savings account 

It’s never too early to start saving and opening a savings account for your pre-schooler is an easy way to help them out financially in the long term. Do your research first by comparing options as kids accounts can often come with certain conditions.

For example, check if monthly deposits need to be made and if so, if there’s a minimum amount. Some accounts restrict withdrawals so if you will be taking money out once your child reaches a savings goal make sure you have an account that allows you to do so. Also, check if a withdrawal will lead to a cut in the interest rate offered by the bank.

Take your child into the bank with you when you next go to the branch and let them hand over their cash to deposit into their account. Here’s where it is important to go home and use the visual aid to show them that their money hasn’t disappeared but is instead helping them reach their goal.  

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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 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.

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.

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 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.

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)

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 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

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 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.

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.