Teaching Kids About Money: From Birth To College

Even before your baby is born, you’re probably thinking about the financial changes a child will bring. New parents have to revise their household budgets to account for expenses like diapers, clothes, childcare, and more. You may also want to start saving for college now. But don’t forget to include your child in financial habits and literacy. Kids learn behavior from their parents, but they can’t learn anything about money if you don’t teach them and model good habits. In this article, we’ll discuss personal banking for kids and how to develop good habits from birth through college.

Start Early With Savings

The earlier you start saving, the more time your money has to grow. Even little amounts will add up over time. This is due to Compound Interest, which is when you earn interest on your initial deposit as well as the interest you accumulate. You can use this Compound Interest Calculator to show your child how much a deposit to their savings account now will grow over a certain number of years.

Building the savings habit will also help your child learn good money habits, such as delayed gratification. Saving also teaches the concept of financial planning–we are putting money away for a rainy day, for example, or saving for a specific purchase or expense.

To help your new baby or young child get an early start on savings, you could open a custodial account or start a trust fund. Both types of accounts give you control over when your child will have access to the funds. Consult with your tax advisor about the tax implications of a trust or custodial account.

Open a Youth Savings Account

Let your child in on the fun! Kids savings accounts are a type of joint account–both you and your child must be on the account, so take them to the bank with you and let them participate in opening the account. You can also take them to deposit funds and use the coin counter machine. Make banking fun so your child will take an interest and want to continue with saving as they get older.

Our Treehouse Club is a special savings account for kids aged 6-18. It comes with a piggy bank for saving at home, a passbook for recordkeeping, and a prize every five deposits. There are no minimum balance requirements or service fees. Learn more about the perks and benefits of Treehouse Savings.

Learn About College Savings Accounts

In addition to general children’s savings accounts, parents can open a college savings account to prepare for future educational expenses. Even if your child ends up taking a different path, the funds can be used for a sibling’s college education. These educational savings accounts can also be used for K-12 private and religious school costs. A college savings account can also be closed and the funds disbursed, although tax penalties will apply.

Virginia529

Also known as a qualified tuition program (QTP), each state has its own 529 plan to help residents either prepay for college tuition or save for higher educational expenses.

 

Earnings on your 529 plan accumulate tax free while in your account. Withdrawals for qualified higher education expenses are not taxed. 529 plan funds can also be used to make payments on the beneficiary’s or a sibling’s student loan (limited to $10,000).

 

If your child doesn’t use all of the balance for educational expenses, and there is no sibling to transfer funds to, you can close the account and use funds for other expenses–subject to a tax penalty and other terms.

Coverdell Education Savings

Contribute up to $2,000 per year and enjoy tax-free withdrawals for qualified educational expenses.

Kids’ Checking Accounts

As your child gets older, they may start working to earn their own money. And they may want to spend some of the money they’ve been learning to save. This is the time to open a checking account for your teenager. Learning how to manage a checking account is an important part of financial literacy and well-being. They can use a debit card, keep track of the money coming in and going out, and reconcile their account to avoid overdrafts. As your teen accumulates some of their own expenses, such as a car or cell phone, they can also learn to budget for monthly income and expenses. Remind them that “saving should always be your biggest expense.”

Financial Responsibility

As your child gets closer to adulthood, it becomes more and more important to teach them financial responsibility. As they grow, you can build upon lessons you taught them when they were young.

• Teach budgeting with an allowance. Kids know how much they will get each week and can decide what to spend and how much to save.
• Incentivize saving. Show your kids their savings account statement so they can see compound interest in action. Offer a “match,” such as one dollar or a few dollars for their savings deposits.
• Encourage generosity. Have your kids contribute to a family donation to a local charitable cause. Ask them to use their own money to buy holiday or birthday gifts for a sibling or other relatives.
• Talk about spending as a series of choices. Instead of saying “we can’t afford that,” you can say “we’re choosing to use our money for ___ instead.”
• Offer opportunities to earn more. Whether or not you require chores for your child’s regular allowance, you could offer occasional chances to earn extra money for help around the house.
• Explain how debt works. Your kids may see you using a credit card to pay at a store and think that money is “free” or “grows on trees.” Talk to them about how you pay off your credit card charges each month or, if you don’t, your credit card will charge a high interest rate to carry a balance and that interest compounds, too.

Open a savings account for your child!

Set your child up for future financial success by opening a college savings account. At age six, take your kid(s) to your local F&M Bank branch in the Shenandoah Valley, Virginia, to open a Treehouse Savings Club account. Have questions about youth savings accounts or other aspects of your family’s finances? Give us a call or visit your nearest branch location.