Teaching your kids how to save

Teaching your kids how to save

They say old habits die hard, so it makes sense to teach your kids how to maintain a healthy savings account as early as possible. It’s a skill that will stay with them for the rest of their lives. 

It’s also a skill that will be ever more important as time goes by. Over the 12 months to this year’s March quarter, the cost of retirement increased by 2.7 percent for those after a “comfortable” retirement, and 2.8 percent for “modest” retirees, according to figures from the Association of Superannuation Funds of Australia (ASFA).

“Rising costs also highlights the importance of superannuation, to ensure people have enough money to live the lifestyle they expect in retirement, for all their post-work years,” Pauline Vamos, ASFA Chief Executive, said. 

One day, your children will be these retirees making the decision of whether to retire comfortably or modestly. Before that stage, help make their decision for them and imbue them with the skills they need to build their savings accounts little by little. 

Jars and goals

From the moment that children are ready to get some kind of allowance, you can teach them about setting goals. Whether it’s for throwing rubbish away when they’re very young or doing the dreaded household chores when they are older, you can start giving your child a financial reward. While they’re at it, you could ask them to choose something they wish to buy – perhaps it’s the latest soft toy, the newest trading cards or even a video game. Looking at the price, explain to them how much of the money they receive weekly they’ll need to put away and how long it will take. 

At the same time, you could pull out a jar and label it “savings”. Have your child put in a select amount every week into the jar, and tell them that this will go toward eventually buying whatever their prized possession happens to be. Be sure to regularly talk about your child’s additions to the jar. How much do they have? How much more do they need? Consider opening a children’s saving account which when the time comes, can be tranfered over into a high interest savings account.

Set a good example

No matter how old your child is, the chances are they will look to their parents as a model for how to live and behave. If you want to instill the thrifty spirit into your offspring, make sure that you are living up to your own advice.

Make a show of putting money away into a jar of your own – they will come to see saving as normal and do the same when they’re older. Also avoid impulsively splurging on frivolous items that you don’t really need. Instead, demonstrate to your child that there is value in putting off immediate gratification. Furthermore, talk to your child about money and finances, and involve them in the spending process – perhaps next time you visit the grocery store.  

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Learn more about 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.

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

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. 

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 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)

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.

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.

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.

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 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

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 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.