A financial Trip to the Bank With Your Kid

A part of your financial education training should include the benefits of banking. They would love the idea of having their own bank account just like their parents do.

Kids need to understand how banking works, so go with them as early as possible to get them their own savings account. Then, help them develop the important habit of depositing money into that account on a regular basis.

The first thing you need to know about a bank is that it is a place where people store their money. Unlike your money box, the banks will actually pay you for keeping your money with them. This payment is called interest. Each month banks will pay you a small percentage of interest which is determined by how much money you have in the bank. So, in theory the more you have in the bank the more interest you will earn. You’re probably thinking this sounds good but why would they pay me just for storing my money there?

This leads to the second thing you need to know about a bank. They actually allow you and others to borrow money from them as well. They’ll pay you to keep your money there, so they can use that money to let other people borrow to purchase things they need. Let’s say someone needs to buy a new house, they will come to the bank to borrow that money because most people can’t afford to pay cash for the whole house.

The bank will give them the money and they must pay it back. However, when they pay it back, they must pay back a little more than they borrowed, this is also known as interest. The difference in the interest is that the person who borrows the money will usually pay a higher interest, which will allow the bank to pay you for using your money.

What is a Bank?

A bank is a place where one can safely keep their money for future use.

When you take your money to keep in the bank, it is called depositing. You can either deposit your money in the bank physically or electronically through the internet.

Purposes of a Bank

The major purposes of banks are;

• Ensure safety of customer deposits (money stored in the bank)
• Pay interest on customer deposits thereby controlling inflation
• Offer loans to those who qualify
• Offer financial advice and related services

Benefits of Banking

1. Guarantees safety of your money under any circumstance
2. Money kept in a bank earns interest thus grows with time
3. Helps you keep track of your money by offering withdrawal and deposit statements
4. Helps you control your expenditure since it is not always close to you

It doesn’t matter if they are in kindergarten or colleges by getting these accounts set up early, they will have an advantage that will last a lifetime. If you have multiple children, one way to keep them motivated is by giving a prize to whoever earned the highest amount in their savings.

Bank Accounts for Kids

The two most common accounts that you can open for your teen are;

1. Savings Account

This is an account that you can use to deposit and hold money that you don’t intend to use immediately.

Your kid can use a savings account to put aside some money for a specific purpose or a personal goal he/she has set, for example a vacation. The safety that comes with a savings account makes it suitable for kids as their money can’t be lost once deposited into the account.

Take your teen/pre-teen child to the bank and open a savings account in his or her own name. Many banks offer a youth savings account with no fees and provide kids with their very own bank card. They can visit the teller to make transactions and go online to watch their account grow (or shrink!).

    2. Checking account

This on the other hand is an account meant for the day-to-day spending.

Once your child grasps the importance of saving, open for them a checking account for them to have a practical experience on money management. Most banks and credit unions will open a checking account for your child provided that you co-sign on the account.

Once the account is opened, you need to help your child to choose what type of checks they’d like to work with. There are a variety of designs to choose from. This process also teaches them how to do comparison shopping. Once the checks arrive, The account becomes a vital tool for helping the kids understand how to manage their money and make sound financial decisions. They’ll learn to balance their check books, read a bank statement and properly maintain their transaction register.

It is very imperative that your child knows how to manage his/her money on paper to make it easy for them to manage it electronically. Using checks to pay for various goods and services teaches them to spend within their means. A checking account is also a good savings tool to help your kid to keep track of his expenditures and income so that they can make a budget and stick to it.

It’s vital that you teach your kid how to properly write a check. Figures and letters for the dollar amounts should be written with no room to add an extra number or letter should someone try to alter the check. Outline to them the importance of filling in the memo line. This shows exactly what they paid for and provides a paper trail incase of a dispute. When paying a bill for instance, ensure they know that they should put their account number in the memo line so there is no mistake about where to apply the payment. Teaching your teenager these simple financial rules will save them trouble later and make them good managers of their money.

Explain that banks don’t just give out money but it’s a place to keep the money they’ve earned. Call and arrange with your local credit union a tour of the branch to show how money is stored and dispensed.

A good idea would be to ‘tax’ them on their savings. Make them aware that a certain percentage of their savings will be taken away every month. You can put that away as an additional saving for them without their knowledge. Don’t let your kid’s first paycheck be her first introduction to taxes! Spare her the shock and show her your next pay stub or tax return.

Walk her through your bank statements and explain the money coming in versus the money going out.

Teach your kids the ins and outs of a credit card account-particularly the difference between making a minimum payment and paying in full-and how quickly interest will accrue with the former! Let them participate to such easy tasks as applying for credit cards, collage loans, and the like, only come in if they need any clarifications.

Start them out with a prepaid credit card. Much like a credit card with training wheels, a prepaid credit card will allow a teen to get an understanding of how credit cards are used, and the financial concepts behind them without all of the risks involved with a real credit card. It will also help them learn to track their spending habits and give them valuable lessons on managing their money.

Give your kid a loan: either “play money” or a small amount that he/she will be able to pay back. Create a loan agreement, set an interest rate, and agree to a payment schedule. Like a real-life lender, don’t let her get away with not paying it back!

Take them with you to the bank to deposit your paychecks into savings accounts. Let them help in check writing to see how you disperse the funds to cover household bills. Get them to do the math when balancing a checkbook. Ask them to sit in on financial planning and household budgeting and so on.

To sum it up a bank is simply a place where money is stored and borrowed. You earn interest for keeping it there. The banks earn interest when people borrow it and pay it back. Remember the piggy bank is nice but it doesn’t pay you for keeping your money there so if you haven’t done so get out there and get your first savings account.

The longer relationship you have established with a bank or financial institution the more benefits your child may receive. Most banks offer clients that have been with them a longer period benefits than new customers won’t receive. They offer their preferred clients benefits such as: better rates, better terms, additional services and they often are able to qualify for loans easier.

In addition to the financial benefits, young adults also feel an added sense of responsibility for their financial future when they have the proper accounts open. This sense of responsibility is a vital part of giving your child adequate preparation before they move out to live on their own.

Show your children how an ATM machine works. While many children know that money doesn’t grow on trees, they may think it comes out of a wall. Help your kids understand that you must put money in the bank before you can take it out.

When you discuss money with kids, you help them develop a sense of limits. You’re teaching kids that the family has to make choices about how it can spend money. There’s only so much money to go around – if you spend it on some things, you won’t have it to spend on others.

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