Kids' Cash Management

One of the best ways to teach kids about cash management is to help them open up and manage an account.

When my daughter, Alexandra, was about three she realized she could exchange four shiny dimes for a purple popsicle at the neighbourhood store. From then on, each time she was leaving the house for a walk past that store, she made sure she had four dimes. When she was four, she graduated to analyzing television commercials, and weighing up her wants and her needs against her wallet's contents. Now that she's fourteen, she not only has to deal with popsicles (banana is the new favorite), she has to manage her clothing allowance and balance her entertainment budget. It's amazing how quickly children learn to incorporate money into their lives. It's equally amazing how reluctant adults have been to teach them about money and the role it should play in their lives. Regardless of our reluctance, children are picking up the message - sometimes the wrong message - about money.

Nine or ten is about the right age for your child to open up a bank account. To create the right atmosphere, call ahead and explain that you want to bring your son in to open up an account. Since your child is becoming a customer, he is entitled to the same attention and care that adult customers are given. In preparation for the trip, ask your child to think of some questions about opening his account. Some examples:

  • How much money do I need to open an account?
  • What kinds of accounts do you have?
  • Are there any fees?
  • What's the minimum amount I must keep in the account?
  • When can I take money out?
  • How do I take money out?
  • How will I know how much is in my account?
  • Will I earn interest? How much? How does that compare with what other banks are paying?
  • What happens if I lose my passbook/account number?
  • Can I write cheques on this account?

Many financial institutions have put together packages to help initiate children into the world of money. Targeting kids 18 and younger, these youth accounts offer a variety of features. Some are unremarkable. Some offer a financial bonus to those under 12 on opening. Some offer freebees like a wallet. Most do little to help guide parents, teach important money lessons or capture a child's imagination. The best and most progressive approaches go beyond the traditional savings account to look at both money management and investing. And they do so in a way that is both kid- and parent-friendly. You'll have to shop around to find the best package for you and your child. Don't simply default to the financial institution you currently deal with. That's lazy. Hunt around for a good place for your child to begin learning all about what's involved in managing their money.

It's a good idea to take an active role in your child's money lessons. It may be easier to simply hand Molly a booklet and hope she'll figure it out. But your child is more likely to develop an understanding of, and comfort with, money if her lessons include some practical, one-on-one activities. And while your first instinct may be to simply open up an account for your child, and make her stick all her gift money in it, that's not very productive.

In preparation for your account-opening adventure, you may have to spend some time familiarizing your child with the language of banking. Here are some terms you may wish to cover:

  • Deposit: "When you put your money in the account, you are depositing it. That deposit is shown right here in your passbook or on your statement."
  • Withdrawal: "When you take money out of the account, or withdraw it, that withdrawal is for the exact amount you want (providing you have that amount in the account)."
  • Fee: "Most accounts have fees for the services you use. Just as you have to pay to get a haircut, you have to pay to have someone take care of your money for you. The trick is to pay the lowest possible fee for the most services."
  • Interest: "Each month your account will earn interest (a pittance, usually) on the money you have on deposit. It's sort of like renting out your money."
  • Passbook: "Your passbook shows how much you have deposited, how much has been withdrawn, any interest you've earned and any fees deducted."
  • Statement: "A statement is also a record of what happens with your account and is usually mailed to you every month."
  • Balance: "The balance is the amount you have in your account."

Make sure your child gets a debit card and learns how to use the ATM for deposits, withdrawals and to check balances, as part of their cash management education. Ask your financial advisor to explain the limits and limitations of ATM use, and debit transactions.

And finally we come to the issue of how much your child will save. I've heard parents declare with pride that their children have to put half of everything they earn into the bank. If you're prepared to put your money where your mouth is - yeah, you're gonna save 50 percent of everything you make, right? - then go ahead and make unrealistic demands of your child so that she can't but fail. But if your trying to establish money habits that are easy to set and easy to take into adulthood, stick with the "pay yourself 10 percent rule" and you'll do the job just fine.

Ditto parents who make their kids put their birthday money away in savings, or forbid their kids access to their money once they've opened up an account - they can put it in, but they can't take it out. You're not teaching your children good money-lessons, and as soon as your back is turned they'll have their hands in the sugar jar up to the elbow! How do you like them cookies?

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