Budgeting for Kids: Do They Need a Savings Account?
Opening up a kids savings account for your children and teaching them how to budget can help ensure success for your children’s financial future and hopefully stability for your own retirement as well.
Most parents would say that they’d want their children to have a better life than they did. And whether or not you grew up in a financially stable home or an unstable one, there’s no reason to not give your kids the tools, resources and knowledge to ensure they’re prepared to make good financial decisions for their own future.
Open a Kids Savings Account
The first step in helping your kids learn to budget is to open a kids savings account. Keep in mind that this does not have to be a bank account that only you put money into (a custodial or joint account); they can add funds to it themselves as well as they earn money from chores or receive gifts from family members. Best of all, you can open the savings account at any age.
For instance, let’s say that you give your children money on their birthday or as an allowance. Even from a young age, you can teach them to put a certain percentage of their earnings into their savings account. Once they get older and start working — whether it’s getting money from doing chores or a job outside the home — encourage them to continue to put money into their savings. If you have the means to do so, you can also add incentive by agreeing to add to match some of their deposits.
Though some parents may use this savings account to help with their child’s education expenses, you can also simply use it to teach them the benefits of a savings account for their own gratification. For example, if your child wants to purchase something for themselves, remind them that they need to put the money into their savings account to help save up for it.
Add your kids as an authorized user on a credit card
In addition to opening a kids savings account for your child, you can also, when they get a little older, add them as an authorized user on your credit card. This is a great way to start helping them build credit while teaching them the discipline that must come with paying off bills on time and before interest accrues.
Of course, you using the credit card and paying off your bills on time will then also help start building credit early, setting them up for a strong financial future. It’s all the more reason to ensure your credit score is strong before you attach your child to it. (Learn how SmartCredit can help you create a plan for achieving your best possible score.)
Involve Your Children in (Some) Finances
The best way to teach budgeting for kids is to involve them in your own household financial planning in a way that’s appropriate for their age. While they don’t need to know every detail, you can sit down as a family once a month and create a list of necessary expenses and bills that need to be paid, based on what your child can understand.
For example, if you know the groceries will cost $100 a week, then explain to your child that you’ll put aside $100. Then, when you take them to the grocery store, let them help you shop so that they can learn how you manage to stay within that budget. Not only is this a great way to directly teach your child budgeting, it also helps to sharpen their math skills.
Help Children Create Their Own Budget
Your children having some involvement in household finances is great for budgeting, but more importantly, your child needs to know how to manage their own budget. This starts with organization.
- Sit down together and show your kids your budgeting system, and then help them create their very own budget.
- Have a dialogue about what will work best for them.
- Remember: just because your system works for you, doesn’t necessarily mean that it will work for your child. Be open-minded and hear their ideas.
Learn About Financial Literacy Together
While some parents might think they know everything there is to know about financial literacy, let’s admit that there is always more to learn or things that we wish we had done better or sooner. Though you can share a bulk of what you’ve learned with your children, it definitely doesn’t hurt to learn about financial literacy together.
Visit the library
A trip to the library or bookstore is a great way to not only bond with your children, but to make the experience of learning about financial literacy fun. Libraries also sometimes have education programs that could be meaningful, too.
Share and download budgeting apps
There are countless budgeting apps out there. Share these apps with each other, and utilize their budgeting tools and data to help aid in your planning. You never know what you can learn from these apps and from each other!
Watch YouTube videos
Screen time might not be great for kids in excess, but watching some videos in moderation can be beneficial. YouTube has plenty of channels about personal finance, like Make It by CNBC, which offers a glimpse into millennial finances.
Don’t Be Afraid to Say “No”
One of the best things you can do as a parent to teach budgeting for kids is to be confident saying “no” to your children. Many children — especially those who go to school or have ever seen an advertisement — will likely ask their parents at some point to buy them something, whether it be a toy, a snack or an electronic device.
Teach needs vs. wants
Though it’s not that easy to say “no” to your child (and, of course, it’s OK to provide them with “wants” every once in a while), getting in the habit of teaching them they can’t always have what they want will help your children ultimately make better buying decisions for themselves.
Whenever you talk about money or making a purchase, ask your child if it’s a need or a want. A simple trip to the grocery store can teach this, and explaining to them that you sometimes purchase “wants” in addition to “needs” can be turned into a different lesson; for example, how much should you spend on “wants”?