Kids’ savings accounts
Children making their Communion and Confirmation in May are set to come into huge sums of money. Great for kids!
But with the arrival of wads of cash, this is also a great time to use the money season to teach kids about money, how money works and that money is a finite resource which must be managed, stretched and protected to ensure it goes further and buys more of the things kids want.
Following are some points parents should consider before they hit the communion season in earnest.
This is a good time to encourage the good habit of saving.
Listen – Today FM Kids Money Segment
Kids today MUST become good savers, here’s why:
Life expectancy for kids today is much greater than it is for their parents and especially their grandparents (factoring in health issues around diabetes / child obesity).
At the opposite end of the scale, as we live longer, there is growing acceptance that the State may not have the financial resources in place to grow State pensions significantly. So, a major responsibility for financial well being has shifted squarely to kids on a scale we have never seen before. SORRY to have such bad news for kids but this is fact! So parent can be creative in helping their kids develop a good relationship with money from an early age, in a fun way that will benefit their kid’s long term financial well-being. For example, they must focus on the fact that money is finite and difficult to accumulate. In the following tips, parents should develop some rewarding options for kids that save for specific goals and even ‘bonus’ them for staying the course with their savings.
Banks reserve some of their best rates for junior savers. Yes, this is true to a point. AIB and others do offer competitive deals for kid savers where the monthly savings amounts are low. For example, AIB promotes a 2.25% deal where the minimum monthly saving is €1. Also, a lot of the kids accounts provide ‘instant access’ which is valuable from a marketing perspective but what would be even better is if the banks offered higher rates on kids accounts where they put the money aside for longer, and kept it there but this is not the case presently.
What is of interest is that some banks do offer slightly higher deposit rates where monthly savings are higher, which is why such products are not ideal for kids. For example, Nationwide UK, EBS and KBC all promote a 3% deal on regular savings accounts where the minimum savings per month is €100 and higher.
Just for the record, the top kid saver accounts are:
- AIB Junior Saver Account 2.26% Instant access account. Can have a minimum monthly deposit of €1. No fees applied. DIRT is liable.
- EBS Children’s / Teen Savings Account. 2% Instant access account. Minimum deposit from €1. No fees but DIRT is liable.
- Ulster Bank UR First Account 1.5%. Instant Access. Minimum deposit from €1. No fees but DIRT is liable.
Tips on how to encourage a culture of saving. Tips for developing a savings culture:
Make it highly visible – a simple idea is to use colours and items children can relate with. For example, create a money goals board with coin images placed on it using a colouring feature to represent savings targets achieved. Coloured in coins = savings achieved to date and uncoloured coins = goal to be achieved in the weeks ahead. This visibility makes it easy for a child to see where exactly they are in savings for a particular goal…and how far they have to go.
Set up a money farm – have different containers for different goals. For example, if they are saving to buy a piece of sports equipment, have a green container (sports = healthy). If they are saving to buy games console, use a red container (red = danger of inactivity). If they are saving for the ‘not decided yet’ item, use a golden box (you get the idea) – it could be their ‘surprise’ fund.
Do a match – be like the Irish Government 10 years ago with the SSIA and establish a ‘rewards’ programme. So, for each €4, you could offer to match by €1. You could even put a bonus in place for when they surpass €100 and €500 in savings with a €10 and €50 top up to encourage long-term savings.
Give them independence – with all of the talk of the Easter Centenary – this could be an ideal opportunity to allow kids make their own buying decisions with a few incentives on shopping around for the best deal. This is really what savings is all about; developing a positive relationship with money and how kids eventually manage their cash is the ultimate goal. On this point, parents must try to ensure that kids understand ‘good’ spending and ‘bad’ spending and perhaps structure their ‘bonus’ around good purchases. For example, use the above-mentioned ‘match’ for spending goals that enhance learning or promote physical activity and skip they are spending on say a stationary lifestyle or where they purchase food items that are high sugar / fat content. Oh, on this point, insist that kids get receipts for all of their spending so you can manage the bonus system. Again, this is all part of the independence-under-supervision-aligned-to-reward philosophy. Kids can opt out of the ‘match’ system if they want to. But they will earn less in the long run.
Give them a job – rewards for around the house jobs are always a great way of linking cash to earning. For example – taking the rubbish! Cutting the lawn!
Take kids shopping and play this little game with them. Ask them to spot the best price on goods based on the unit price for a select few items on your shopping list. For example, the unit price on goods is listed in supermarkets as a way of comparing ‘absolute’ price and comparing costs. Reward them with any loose change and use a piggy bank to get them into the savings habit (or the coloured containers).
Conclusion – money is a finite resource. We still have to earn it and this method of accumulation has not changed in millennia. As kids receive communion cash in envelopes from parents, aunts & uncles, mothers and fathers-in-law and extended family, parents should use the opportunity to teach kids about how money works. Doing so will be far more valuable and offer a lifetime benefit to kids than the cash they receive on the big day.
Frank Conway is Founder of MoneyWhizz.org, the financial literacy initiative for students and adults