You Are Never Too Young To Start Saving
It's Never Too Early To Start Saving
Anyone who has a checking account more than likely also has a savings account. Many banks will automatically open the two together, giving the owner easy access to both with their online username and password. During the opening process, though, the banker will often tell the account holder of the various benefits that the savings account offers, including accrued interest and zero fees. But these benefits don't just apply to those who have a checking account. A savings account, when opened on its own, can provide a myriad of advantages—especially for children.
The Statistics Of Children's Savings Accounts
There have been a number of studies completed that show the positive effects that a savings account can have on a child—even if the savings that is accrued is not a significant amount. In 2013, the Panel Study of Income Dynamics found that, in low and moderate-income families, children who have a college savings account are three times as likely to go to college and four times as likely to graduate from college than children who do not have an account. And this statistics still holds true even when the account balance is under $500. Other similar studies have found that when a college savings account has as little as a single dollar in it, students are 7 times more likely to go to college.
There is also research to indicate that when children have a savings account, they are able to accumulate more assets compared to children who do not. On average, those with savings accounts are able to accumulate $2,000, while those without one are only able to save $100. And this translates to better money management down the line. Adults who had a savings account as a child are four times as likely to invest in stocks.
The Benefits Of Children's Savings Accounts
These statistics tell a story. The narrative that they reveal is a long list of advantages that come with doing something as simple as opening a savings account for your child.
Good habits create responsibility. This is why many parents choose to give their children daily or weekly chores—it is not to punish them, as most children seem to believe. When a child knows they need to clean their room, they will be less likely to make it messy in the first place. The same concept applies to a savings account.
When a child understands the concept of money, the value of a dollar, and that saving it can be beneficial, they are less likely to spend their weekly allowance on candy and instead save up for that toy that they have been wanting. And when they can eventually buy that toy with their savings, they will feel a sense of pride and accomplishment. This saving for a toy can then turn into saving for a car, saving for college, or saving for the future.
A Smart Way To Save
Some parents may argue that the concept of saving can be just as easily taught with a piggy bank. This is true. The simple fact is, though, that a piggy bank does not provide your child with a way to earn interest—unless you want to act as a bank and dish out money from your own wallet.
Savings accounts have good interest rates. When the savings accumulates over time, the return can be impressive. Additionally, with many savings accounts, especially ones for children, banks do not charge service fees and have a very low minimum balance requirement. In other words, there are only financial upsides to starting a savings account for your child.
Having a bank account is an adult responsibility. When you give that responsibility to your child, you are showing them that you believe in them and that they are wise enough to make some of their own financial decisions. As they begin to make their own financial transactions, they will gain self-belief and a confidence that they will be able to take on other adult responsibilities when the time comes.
Creates Financial Literacy
Too many individuals only start truly understanding how to handle money when they get their first paycheck or they have to pay their first bill. When you open a savings account for your child, you can start them down a path of becoming deeply financially literate at a very young age. The monthly statements allow you the opportunity to discuss monitoring and managing their own account, the lucrative potential of compound interest, the idea of wanting something versus needing it, making a savings goal, and how to balance their spending and savings.
As your child gets older, you can begin to look at additional financial options that they could take advantage of, such as potential investments. In other words, a savings account is a springboard. It allows children to understand the basics of the banking system and have a foundation for exploring other financial areas.
While creating a financial teaching window and instilling confidence in your child is important, the financial implications that a child's savings account can create are signficant. If your child deposits small amounts of money into their account at regular intervals, they can see an enormous return down the road. For example, if your child deposits $10 into their account every month from the age of 3 up until they turn 18, they will have saved $1,800—and that is not including the interest earned. Now consider if they deposit $10 every week, the few hundred dollars they earn every month at their summer job, and their birthday money. This can eventually turn into serious cash that can be reinvested into their education, transportation, or another financial outlet.
Opening a savings account only has upsides. There are virtually no risks or disadvantages. It can, however, be difficult to know the ins and outs of how to open the account, at what age is most beneficial, and the rest of the logistics associated with making financial decisions. Now that you know the benefits of opening a savings account for your child at a young age, head over to our Kids Club page and consider starting one today!
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