I got my first bank account when I joined the university. I opened the account to apply for a HELB (Higher Education Loans Board) loan. This was the situation for many people. Until then, I had not interacted with my own money except pocket money. Hence, you can understand the excitement and the mismanagement of funds that came with that first loan landing on the account.
However, if I had a bank account and learned money management earlier, I could have handled my first HELB disbursement better. In this article, we want to understand the benefits of a bank account for children.
Opening a bank account for children introduces them to their financial literacy development. They will understand and execute money habits that allow them to create financial stability in the future. They will understand the hard work of earning, the sacrifice of saving, and the savviness of managing interest and costs.
As a child, while growing up, you never really think where money comes from. You only know what your parents provide for you. You even become entitled to what they provide. If, for instance, you had an allowance, and your parents failed to give you one time, you would be angry with them, not understanding that they might not have the money at that time.
This is because the concept of making money is shielded from many children. However, having a children's bank account is the first step towards orienting children into money matters.
Instead of just giving them an allowance, you can allocate chores to allow them to earn their allowance. This would be their income. You can then choose to pay them through the bank so that they can start transacting with a bank account.
In addition, you can easily teach them the idea of savings with their own bank account. Now that they have an income deposited in their bank account, they can learn how to spend less to save. Especially if you gamify their saving experience and set interesting challenges, for instance, they get a bonus if they save up to a certain amount.
However, they have to budget and frugally manage their allowance before saving. At this point, they have to learn what a budget is. They must learn to prioritize their needs and wants and use their allowance to fulfill them. They might need to save for a few months to buy a toy they want.
A child might not understand the difference between needs and wants since you, as a parent, take care of the needs.
But teaching them the difference at a young age is vital. They have to understand that one should prioritize needs over wants. Sometimes you do not buy them toys because you have to buy food. Food is a need, and a toy is a want. As much as the toy is important to them, food is higher in the life hierarchy of values.
If they spend the money in the bank account to fulfill their needs and wants, they can see the money depleted. Hence, they can see that money is a limited resource, so they should learn how to prioritize. As opposed to when they do not see where the money comes from, they might think there is an endless supply.
Read Also: Fun Ways to Teach Your Children About Money
Nevertheless, learning how to set financial goals will aid in their budgeting and saving. Financial goals aim to teach children to think about the future rather than only their real-time desires. You cultivate delayed gratification when they are young. They also learn to have a long-term view of the money in their management.
Hence, having a bank account is an excellent tool to help you teach them this because they can easily save and monitor their progress toward their financial goal.
First, they understand that money is earned. And earning money takes work. It takes effort. Therefore, having money should be taken seriously. Money should be safeguarded because you might have it today and have none tomorrow.
While teaching kids the ideas of interest and savings, you are introducing them to ideas of safeguarding their money.
Interest is money earned from a loan or savings. When you take a loan from the bank, the loan earns interest for the bank. On the other hand, when you store money with the bank, your money earns interest.
A child will not be taking loans, but it is important that they learn how to grow their money through interest earning. With a children's bank account, they can monitor how much interest their money earns them and how that helps them reach their financial goals.
A child learning about interest earning early helps them have a long-term outlook on their money, which is essential to achieving financial stability.
Once they understand that their money can grow through interest earning, this incentivizes them to save more because the more they save, the more interest they earn. It also encourages them to save for a long time since the more the money is in the bank, the more interest it earns.
Hence, having a bank account for a child is more than just opening an account for them. It is an avenue to properly introduce your child to how money works and the habits and perspectives they need to embody to be financially stable.
Teaching children about savings and interest is one part of teaching them how to safeguard and grow their money. However, they also need to learn how to work with the bank by developing relationships with their banks and taking charge of every coin spent while transacting with their bank.
As adults, we often do not pay enough attention to transaction costs and standing fees. We perceive these costs as insignificant. However, when charged once, it might be a small fee, but when the fees accumulate and are charged over a long period of time, they take away quite a sum from your pocket.
Your children must have a grasp of these seemingly insignificant fees. Once they learn about the fees and how to manage them, they understand how to manage their money better.
Other fees to look out for are withdrawal fees. Withdrawal fees are what you pay to remove money from the banks' ecosystem. Banks want to keep the money to have a bigger balance sheet. You pay a fee when you want to take out your money. These fees can accumulate significantly, especially for a child who might be impulsive and want to keep withdrawing now and then.
Having a bank account for your child is a proactive way to prepare them for the financial rigors that come with adulthood.
For a start, you help them develop good financial habits. They learn that money is earned and earning money is not easy, so they must save. In addition to saving, they earn interest on what they have saved.
Understanding all this at a young age boosts the odds of your child being financially stable significantly.
Secondly, they know how to budget and have a long-term view of their money and financial goals.
In addition, they will have less anxiety about money as they grow up. Most people are uncomfortable talking about money because they do not understand money well and do not have the best relationship.
Essentially, a bank account for your children helps you teach them effective money management.
A bank account for children might not have millions in it. However much is in the bank account, it allows your child to learn how money works. It gives them the control to feel what it takes to succeed financially.
But more importantly, it cultivates the proper perspective and habits about money as they grow up. Hence, they don't get bamboozled when they get their first paycheck, like when I got my first HELB loan disbursement.