Should My 5 Year Old Have A Savings Account?
Many of Harper’s friends are already getting an allowance. Yet despite our chats on how she too can earn four bright quarters for keeping her room clean, she’s not bitten yet. But we’re not worried. Her father and I are fairly certain her instinct to earn money will kick-in.
But sometimes parents do get nervous about their children and money. Worried that their kids may not be learning how to value all those coins and bills. Anxious that every request for an ice cream cone, or a new DVD means their creature is destined for credit card debt and unemployment.
Not so. There are many steps starting at about 2 years old (!) that you can do with your kids to help them learn about that green stuff.
But hold on — That doesn’t mean if your darlings are already in grade school and you haven't set them up with online trading, you’re doomed. Ever taken your kids the grocery store? Let them hand the coins over for an ice cream cone? Chances are you're probably right on course.
Some suggestions, with ages, are below for moms to use as stepping stones. But bear in mind every child is different. Harper might not be ready for an allowance in six months when she turns 7, but she already has a bank account that she’s knows earns her money. (Something we all should be excited about!)
Remember, you know your child best. And if you’re even reading this, chances are you’re child is already on track for some solid financial footing. And please share some tips that work for you!
Ages 2 to 5
• Let them pay for small items such as an ice cream cone, or a toy at a store. And have them wait for the change. Besides feeling like a big kid, they start to understand that there is a value to the food, clothes, and toys that we buy.
• Start a piggy bank with your child and let them count the number of the coins they have in there. (They may not be ready to understand quite yet what each coin is worth.) It's exciting to them to add to this collection!
Ages 6 to 8
• Think of starting an allowance. In school, they’re likely to be learning about the value of coins, which can help. Try to tie it to a responsibility at home — giving them a sense of accomplishment for their earnings.
• Have your child be responsible for his or her money on an outing. Let her bring $1 or $2 with her to the store or amusement park, and have her hold it. If she loses it, she’s going to be more watchful next time, and a lost $1 is replaceable. (although, don't share that...)
• Help them understand that things actually do cost money. Harper begs to watch the Tinkerbell money, which costs about $5 to rent on our On Demand channel. The last time she wanted to see it I told her she had to contribute. Now she helps me look for the free movies first!
Ages 9 to 10
• Open a savings account and help them think of something that could be saving for (ahem, besides college!) such as a big kid bicycle, video game, or a new soccer ball. This is a great time to talk about needs and wants.
• Have them sit with you to see you paying bills. Let them watch you write a check to the telephone company, or pay the electric bill electronically. Yes, checks are likely to go away by the time they're old enough to write them — but this gives them a chance to see how parents balance budgets, and what we pay for in our regular lives.
Ages 11 to 13
• Now is the time for them to start thinking about a real savings plan. Have them go to a bank and meet with a representative who can explain with much more detail the idea of compound interest (which they should be able to follow a bit with their math skills at this age.) Have them thinks about what portion they want to go to long term expenses (college again!) and something more immediate like spending money for a summer trip.
• It's not too early to talk about investments now. No, don't hand them the password to your online brokerage account. But a savings bond? Not a bad idea. How about teaching them about an IRA? Yep, there's no minimum age for someone to open an IRA — just that earned income be used to fund it. Starting to save for retirement at 13 might seem too young at first. But honestly, most of us probably wish we'd been savvy enough to do just that! Which bring us to.....
Ages 14 to 18
• Encourage them to get a job, such a babysitting if they’re still under 16. Earning money — form someone other than you — is the fastest way, and most immediate, for them to learn the true value of money. (And savings for that IRA!)
• Cash, cash, cash. Having real money in their hands gives them a better sense of what something costs than handing over a piece of plastic. A conversation about credit card interest and debt now, could be extremely helpful for when the credit card companies start hawking them at college.
• But signing them up for a no-fee debit card might be good training wheels for a child close enough to college. Putting them on a budget and giving them a real sense of how much they need, without running out, can help them steer clear of credit issues later!
But sometimes parents do get nervous about their children and money. Worried that their kids may not be learning how to value all those coins and bills. Anxious that every request for an ice cream cone, or a new DVD means their creature is destined for credit card debt and unemployment.
Not so. There are many steps starting at about 2 years old (!) that you can do with your kids to help them learn about that green stuff.
But hold on — That doesn’t mean if your darlings are already in grade school and you haven't set them up with online trading, you’re doomed. Ever taken your kids the grocery store? Let them hand the coins over for an ice cream cone? Chances are you're probably right on course.
Some suggestions, with ages, are below for moms to use as stepping stones. But bear in mind every child is different. Harper might not be ready for an allowance in six months when she turns 7, but she already has a bank account that she’s knows earns her money. (Something we all should be excited about!)
Remember, you know your child best. And if you’re even reading this, chances are you’re child is already on track for some solid financial footing. And please share some tips that work for you!
Ages 2 to 5
• Let them pay for small items such as an ice cream cone, or a toy at a store. And have them wait for the change. Besides feeling like a big kid, they start to understand that there is a value to the food, clothes, and toys that we buy.
• Start a piggy bank with your child and let them count the number of the coins they have in there. (They may not be ready to understand quite yet what each coin is worth.) It's exciting to them to add to this collection!
Ages 6 to 8
• Think of starting an allowance. In school, they’re likely to be learning about the value of coins, which can help. Try to tie it to a responsibility at home — giving them a sense of accomplishment for their earnings.
• Have your child be responsible for his or her money on an outing. Let her bring $1 or $2 with her to the store or amusement park, and have her hold it. If she loses it, she’s going to be more watchful next time, and a lost $1 is replaceable. (although, don't share that...)
• Help them understand that things actually do cost money. Harper begs to watch the Tinkerbell money, which costs about $5 to rent on our On Demand channel. The last time she wanted to see it I told her she had to contribute. Now she helps me look for the free movies first!
Ages 9 to 10
• Open a savings account and help them think of something that could be saving for (ahem, besides college!) such as a big kid bicycle, video game, or a new soccer ball. This is a great time to talk about needs and wants.
• Have them sit with you to see you paying bills. Let them watch you write a check to the telephone company, or pay the electric bill electronically. Yes, checks are likely to go away by the time they're old enough to write them — but this gives them a chance to see how parents balance budgets, and what we pay for in our regular lives.
Ages 11 to 13
• Now is the time for them to start thinking about a real savings plan. Have them go to a bank and meet with a representative who can explain with much more detail the idea of compound interest (which they should be able to follow a bit with their math skills at this age.) Have them thinks about what portion they want to go to long term expenses (college again!) and something more immediate like spending money for a summer trip.
• It's not too early to talk about investments now. No, don't hand them the password to your online brokerage account. But a savings bond? Not a bad idea. How about teaching them about an IRA? Yep, there's no minimum age for someone to open an IRA — just that earned income be used to fund it. Starting to save for retirement at 13 might seem too young at first. But honestly, most of us probably wish we'd been savvy enough to do just that! Which bring us to.....
Ages 14 to 18
• Encourage them to get a job, such a babysitting if they’re still under 16. Earning money — form someone other than you — is the fastest way, and most immediate, for them to learn the true value of money. (And savings for that IRA!)
• Cash, cash, cash. Having real money in their hands gives them a better sense of what something costs than handing over a piece of plastic. A conversation about credit card interest and debt now, could be extremely helpful for when the credit card companies start hawking them at college.
• But signing them up for a no-fee debit card might be good training wheels for a child close enough to college. Putting them on a budget and giving them a real sense of how much they need, without running out, can help them steer clear of credit issues later!
Tags: allowance, barack, cards, children, credit, decisions, family, financial, ira, job
Add a Comment
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Comment by Angela Moore on June 2, 2009 at 7:32am - Fantastic tips here! Both of my kids have savings accounts and piggy banks, but they see money as toys, not as something they need to take care of. We're working hard to have them focus and I think your suggestions will help us do that. Thanks for posting!
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Comment by Darline Turner-Lee on May 29, 2009 at 10:09am -
Both of my children, ages 6.5 and 3, have savings accounts and College accounts. I started accounts for each child when they were born and add to them when my husband and I can. With the cost of college skyrocketing, we know that we are going to have to offset the costs somehow.
Additionally, I think that it is important to teach children about money early on. My daughter (age 6.5) would very likely spend all her money if I let her on ice cream and toys. But I am teaching her that just because Grandma sent her money, she needn't spend it all. I usually allow her to have a small amount ($1-2) and we put the rest in the bank. At 6 years old, I think that's enough. As for my son (age 3) I just bank his money as he really has no concept of money right now. He is happy to put his money in his piggy or to hand it to the teller. As long as HE is the one to hold it and put it into savings (account or piggy), it all works well. We are just starting to explain saving to him but he doesn't yet fully understand the concept.
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Comment by Lauren Barack on May 28, 2009 at 7:47pm - Thank you everyone for these great suggestions! I love how many people already have savings account for their children, and of course as soon as I posted this, Harper came to us asking to have an allowance. She has already decided what she thought was fair ($1 a week) and what she thought she should be responsible for to earn it. I'm going to apply some of what you all mentioned as well - I like that some of you have your children set aside different amounts in different buckets....great!
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Comment by Jeanette Albert on May 28, 2009 at 5:42am - My step son receives a weekly allowance. He is 8 years old. 10% goes to church, 10% goes to savings, 40% goes to savings, 40% goes to spending money for the week. He has been getting this allowance since he was 3 years old, and truly appreciates the value of money. If he wants a specific toy or video game, he knows he has to save his weekly money, it doesn't come out of savings. His savings account is for when he is older and needs a car, college money, etc. He has $1000 for a car already saved (at 8!!!). I think this is a very important lesson to teach kids, and one they will carry for the rest of their lives.
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Comment by Kakie on May 27, 2009 at 3:50pm -
Here are a couple of really good resources for teaching kids about money .I hope you find them helpful!
1. Sesame Street Workshop, Talking Cents
2. The United States Mint has a site called H.I.P. Pocket Change
For Kids - Click here for free Games about money
For Teachers - Click here for teachers guide, lesson plans and more
Book Covers from the award winning Bur Bur and Friend's children's book series: Bur Bur and Friends is a cast of multicultural characters who educate kids about self-esteem, sports, outdoor exploration and active play though their experiences.
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Comment by Tina O'Shea on May 27, 2009 at 8:53am - We keep three jars for my 5-year-old's allowance. $1 goes into "spending money," $1 into "savings," and $1 into "donation."
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Comment by Midwest Mom on May 26, 2009 at 3:46pm -
I actively teach my children about money, earning, saving and spending. We don't give allowance, though. We pay them per chore to make the connection between work and getting paid. Once they have saved a certain amount, we allow them to deposit their savings in the bank, along with a bonus "employer matching contribution." (Ha.) When they bank statement comes, we give it to them so that they can see their savings earning pennies without the work.
It's amazing how the process has turned my spendthrifts into natural savers. The more they understand that money represents work they've done, the more careful they are about spending.
Great tips for all ages. Thanks so much for this post!
- Julia at Midwest Moms
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Comment by Adrienne Graham on May 25, 2009 at 3:17pm - I agree. You child is ready for a savings account. I think this generation of parents needs to instill financial literacy into children at an early age so they don't become victims of the same set of circumstances the country is facing today. My son had a savings account from very early. Today at 18, he has not just a savings account, but also checking and an investment account.
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Comment by Leslie on May 25, 2009 at 1:20pm - My kids have accounts. They've had them for a couple of years and are 11 and 14 now. They put part of their allowance in each week into the account...my attempt at teaching them the importance of saving and compound interest. That $2.50 a week does at up...they have over $200 each now!
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Comment by Donna Chaffins on May 25, 2009 at 11:29am - It is NEVER too early to teach your children about saving or money in general, for that matter. Good tips!
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