I’m not sure why I took the road that led me to become a financial planner here at USAA, but I suspect it can be traced back to a passbook savings account I had as a child. I can still see the little blue book that was stamped with my new balance each time I made a deposit.
Everyone wants the best for their kids, and part of equipping them for life may be setting them up with the modern version of my old account. Here are five reasons to open a savings account for your child:
- It gets them in the money game. Explaining money to children is not necessarily easy, especially in today’s digital world. That’s one reason a piggy bank is still a valuable training tool. When I was a kid, I began learning about finances with weekly trips to the store; I could buy candy with what I’d saved. A savings account allows you to kick that lesson up a notch.
- It introduces the savings habit early. Saving is central to financial security, and as a country we’re not doing too well on this front. Start early with your kids and create positive habits by urging them to save part of their allowance, baby-sitting earnings or lawn-mowing income.
- It helps you encourage them to save. Not only can you teach your children what savings is all about, you can incentivize it. At our house, we matched any money the kids added to their savings accounts until they turned 18. That provided a larger payout on those fast-food jobs our kids worked – at least for the portion of their earnings that made its way to their savings accounts.
- It gives them spending options. I’m a big fan of 529 college savings plans, but education is not the only reason your kids may need money when they become young adults. They can use their savings for other financial needs that arise. But don’t forget that a student’s money is taken into consideration when he or she applies for financial aid for college.
- It’s a stepping stone. First, opening a savings account gives your children access to your bank or credit union’s communications, tools and apps designed to teach them about money. And as they get older, money in savings accounts can fund investment accounts that will help them understand stocks, bonds and the power of compound returns. Heck, for teenagers with jobs, it might even be an opportunity to get an early start on building for the future by funding a Roth IRA. From a more practical perspective, it could be the path to a car or deposit on an apartment.
If you haven’t already, set your children up with savings accounts today. It may not turn them into financial planners, but it can help prepare them for the fiscal responsibility of adulthood.
J.J. Montanaro is a certified financial planner with USAA, The American Legion’s preferred provider of financial services. Submit questions for him online.