Financially Savvy Kids

Savings accounts are the first thing most people think of when they want to teach their children to save. Most parents start some type of savings account at an early age to incentivize saving over spending. I did this for both of my children to teach them about saving. The most common accounts opened are with Credit Unions and Banks. In reality the actual type of institution doesn't matter. Look for one that is kid friendly to help associate positive memorable feelings with going to the bank. Early in life your child's mind is associating feelings of good and bad with everything they see and do. A crowded, smelly and run down bank will not develop a sense of pleasure in a child's mind. In the same way you teach them firefighters are good people you need to associate the bank with those same feelings.

Pay attention to promotions for children. Many banks and credit unions will match up to $500.00 of initial investment. The credit union we signed up with had a reward system for the kids. They had a deposit book and every time they made a deposit of $5 or more they got a stamp. After 10 stamps they got to choose a reward; such as movie tickets. Many financial institutions have kid friendly programs. At an early age it is more important to have a friendly neighborhood place where you can walk in and 'experience' the bank. This will help to build and associate a positive relationship mentally.

When they get a little older it is important to start to teach them about the different types of financial instruments. In most instances a Credit Union will give you better loan rates and a general higher interest rate on your balance. The price you pay with a Credit Union is in accessibility. You likely will have only a few brick and mortar places to go and talk to a human being and they won't exist beyond your local area. This difference between banks and Credit Unions is still important to differentiate with children. Access was a big thing 30 years ago but in today's society many people perform all their banking functions online so needing to have access to a physical location is not always necessary.

Most parents stop teaching children at this point. They have opened a savings and a checking account (which is also going the way of the dodo) and explained the basics and call it good. Very few consider opening up investment accounts or even retirement accounts for their children. This is where the rich have the advantage in teaching their children about the financial system and how to make the money work for you.

A recent New York Times' article, The Secret to Saving for Retirement: Start Before You're 20 points out the benefits to starting early. Last year I finally started a ROTH IRA for both of my kids. My youngest, who is 9, earned money doing typical summer jobs of mowing the grass or watering plants for a neighbor while they were away. He only netted $20.00 that could be put toward income but that will now grow tax-free for the rest of his life. I intentionally started the ROTH IRA for my oldest, who was 15, and was making a little more money. He only brought in about $150.00 his first year but I made the contribution to his IRA. This year he now has his first 'real' job and we will max out his IRA contribution based on his total earned income this year.