Setting up a Simple Savings Account Creates Financial Literacy for Kids
In a world of direct deposit, online bill paying and credit cards, opening a savings account for your child is an ever-more-critical tool for teaching them the A-B-Cs of 1-2-3s. As your child grows from newborn to new college student, selecting the best savings plan for kids can help them grow their finances as they grow up.
Read on to learn a few tips on picking the right account for your child—and why every kid needs a savings account.
Opening a bank account for your child
Creating a savings plan for your child has benefits that continue to grow each year. A simple savings account can help teach your child:
- Basic math skills
- How compound interest builds their savings
- How to deposit a check
- How to focus on financial goals and priorities
- Why they should save money instead of spending it on trivial things
Teaching children financial literacy can have other unexpected benefits. Studies have shown that kids with savings accounts specifically earmarked for higher education—even with less than $500 in it—are more three times more likely to attend college. This means that the best savings plan for kids is the one with even a single dollar in it!
To enforce these lessons, it’s important to encourage them to save. Make sure that some percentage of the money that they earn—from birthdays, chores, jobs, etc.— goes into savings.
It’s also key to make sure their understanding of their savings account grows as they do.
Saving at any age
The best savings account for a newborn
Setting up a savings account for your child right after (or before) they’re born can give you a little extra time to build up an account for your child to use—or even start the process of building a financial gift for when your child becomes an adult.
Regardless of the reason you create the account, following a few simple steps can help you make the most of your savings dollars.
- Select an account that has no minimum fees, monthly balance or deposits. Otherwise, the $100 you put into the account today may be worthless in a few months instead of more.
- If your financial institution normally charges fees, see if opening an account that resides under your own can help you reduce or avoid these costs.
- Consider setting up automatic weekly deposits. Just $10 a week will add up to more than $11,000 with 2% interest by the time your child turns 18.
- If your goal is to eventually provide your child with a generous gift, you can also roll the money into a ROTH IRA at the end of every year. Just $10 per week at 7% interest would equal $35,000 by the time your child reaches age 25.
- This account can eventually be turned over to your child or used for a larger gift later in life.
When your children are young, explain how savings accounts work in the simplest terms. A young child can understand that $2 per week in the bank will result in a savings of over $100 per year.
And while the child might not understand compound interest in detail, it’s worth explaining that a Greater Alliance savings account gives them 3.00% APY* on the first $1,000 in their account—which means they’ll be accruing more money than they put in the account every year.
Middle school-aged kids through high school
Middle and high school children will be able to gain even more financial understanding and experience from a savings account. As they get older, concepts like compound interest will become easier to grasp.
Teens will also want to start saving for larger expenses, whether it’s a phone, another electronic device or a bike. A Greater Alliance Don’t Touch Account can help them set money aside as they save toward a goal.
Saving money for college
As your children get ready for college, setting up college checking and savings accounts can make sure they’re ready for day-to-day educational expenses.
However, if you’re looking to save for their education, you can support their needs with a 529 plan. Whether you want to start saving the day they’re born or once they get into high school, a 529 plan can provide tax advantages and financial flexibility with minimal impact on financial aid.
To get the account started:
- Pick a plan: A variety of plans are available, so be sure to select one that maximizes your benefits.
- Select an Individual or Custodial plan and complete the application:
- Individual accounts have the parent as the owner and the child as a beneficiary.
- Custodial plans have the child as the owner and the beneficiary, with the child having control over it once they reach the age of majority.
- Fund the plan: While there is no maximum contribution every month, it’s recommended that you add $250 per month from the birth of your child.
- Choose your investments: These vary by plan.
Do you want to learn more about teaching kids about financial literacy and the value of money? View our infographic for tips.
We’re ready to help kids learn and earn
If you’re ready to set up a savings account or investment plan for your child, call us at 888-554-2328, or email gro.ecnaillaretaerg@ofni for additional information. We’ll be happy to discuss the best savings plans for kidsthrough Greater Alliance to help you save for your child’s future—and help them to do the same.