Introducing Children to the World of Banking

Opening an account for your child is an excellent way to introduce them to the world of finance. Many parents do it with the hope that their child will learn the value of money management early, and will look after their financial situation in adulthood as a result.

Benefits

Young children (and sadly, some adults) buy into the idea that “money grows on trees”. Most parents reach a point where they would like their children to understand that the cost of living must be paid for with work, and that unless the money is budgeted carefully it can run out.

By introducing your child to the concept of budgeting and banking, you may just find they have a completely new respect for you and your money.

Spending Account, Not Savings

If you open a savings account for your child and keep it under lock and key, you will not be teaching them any sort of lesson. Although savings accounts are certainly valuable (and much appreciated once the child has grown), they are not as useful of a learning tool, because the child never gets to make decisions regarding the money’s use.

Instead, open an account for your child that is meant to have money go in and come back out. The amount of freedom that you give your child with respect to this account will depend on their age. If you are starting young then it is appropriate that all purchases and withdraws be cleared through you first. However, be careful not to be too strict with the rules. Allowing your child to make mistakes now, when the costs are low, is much better than when they are an adult.

Account Features

Your child’s account should be the most basic one possible. There is certainly no need for any credit features such as overdraft and cheques are likely not a good idea. The concept of this type of account is that your child understands that once the balance reaches zero, they will no longer have any money to spend.

When Cash is Better

Before your child is able to understand the value of money in a bank account, it is important that they fully grasp the value of the currency. We have all seen a child who is drawn to coins rather than bills, ascribing the heavy, pretty items with more value and willing to trade a note for a coin.

Until your child can understand the relative value of the money itself, they are unlikely to understand how a bank statement can have any worth. So, before opening an account for your little financial planner, start by giving them a variety of currency and help them to understand the relative purchasing power of each denomination.

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Tags: Bank, Banking, Current Account, Money Management, UK Credit Cards