Financial literacy is a valuable life skill that should be taught to kids as early as possible. One tool you can arm kids with to help them develop their personal finance skills is a savings account.
Kid’s savings accounts are simple to use and understand. They help to teach children what savings are and the value of growing your money. Many lenders provide kids (consumers under 18) with savings accounts while also offering competitive interest rates.
Why open a children’s saving account?
Australian kids are running the risk of falling behind. Around a fifth of Aussie 15-year-olds do not have basic financial literacy, according to a recent OECD Programme for International Student Assessment report. Therefore, it’s crucial to teach kids financial literacy as early as possible so that these skills trickle into all aspects of their life.
Here are several lessons you can teach your kids by opening a savings account:
- Teach kids about income
By storing your kids’ pocket money or chore money into a savings account, they can better understand the concept of a salary or income. A piggy bank may feel like a low maintenance approach; however, it prevents them from learning that you can earn regular “wages” in return for labour or services that are transferred into a bank account.
You can also print off their bank statement and talk it through with them, teaching them basic money concepts such as account balances, when and how the money comes into the account and interest.
- Teach kids about budgeting
A saving account is also a great way to show children how to budget. By storing their pocket money into a kids’ savings account they can then choose whether to spend the money now or save it for something bigger.
ASIC recommends using a “save 50 per cent, spend 40 per cent, donate 10 per cent” rule as a good measurement to help kids understand the concept. Or, you can sit with them and help draw up a budget of how they’d like to split their pocket money.
- Teach kids how to plan for a goal
Whether they want a new toy or a bike, every kid will have something they want to spend their money on. By setting a savings goal, you can help them to develop their patience and get a sense of forward planning. Sit with your child and talk through what their savings goal may be, and how the income they gain through pocket money and simple budgeting will help them to achieve this. If they’re also old enough to understand interest, this is a great opportunity to see it in action.
- Teach kids about over-spending
Everyone makes mistakes and these are still great lessons to learn, especially at an early age. If your child spends all their pocket money in one go instead of putting it towards their savings goal they’ll quickly understand they’re even further away from that big-ticket item. They may feel disappointed, and you may feel tempted to help them out, but the experience will help them to budget better in the future. It’s a lot easier of a habit to break early, before they’re old enough to rack up huge amounts of debt on a credit card.