When I was a kid my parents had me open a passbook savings account with $400 that I had received for my Confirmation into the Catholic Church. Over time I made deposits and withdrawals, and learned how to have my own money.
For the first few years that I was a dad I would take the money my kids received for birthdays or Christmas and buy I Series Savings Bonds. I was pretty proud of myself, thinking when the kids went out on their own I would surprise them with this mystery money they’d never known about. But then I realized that while these bonds were good, the kids would be much better served to have money they can track and manage on their own. So last year we had the kids open their own accounts.
How to Open an Account for Your Child
Opening an account for a child is simple and can be done with virtually no money because they are not often held to keeping a minimum balance. If they are, don’t bank there.
You will need a couple of dollars, your child’s social security card, and maybe a birth certificate. It varies. You’ll also need your social security card in some cases.
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Getting Bank Statements
When my kids get their bank statements in the mail we open them together. I show them the interest they made and how much they have. This is great for several reasons. Kids love getting mail, and they are saving their money.
When I used to let my kids carry all their money with them it would get spent, and I figured, well, it’s their money. If they want to buy a toy, they should be able to. I don’t disagree with that belief today, but I do think it’s best for kids to see that money can have other uses like savings and investing.
Moving From Bank Accounts to Investments
My wife and I are currently on Dave Ramsey’s baby steps. Currently, we are trying to fulfill step 3, which is to save 3-6 months of our income. This is not coming as easily as we had hoped, between needing to replace a car and the air conditioner this summer. Despite these challenges, though, we were able to pay cash for both.
Living this way showed us that we could help our children get ahead in the same manner, so we’ve decided that after the kids fulfill step 1, which is to have $1,000, they can bypass steps 2 (pay off all debt except the mortgage) and 3, and move on to step 4, which is to save 15% of one’s income for retirement.
The kids don’t have a regular income, but they do receive monetary gifts, of which they usually get to have 1/3 to carry with them. In this case, we’ll show them different investments like CDs, IRAs, mutual funds, and bonds, and let them pick where they want their money to grow. I would personally prefer for them to have this money not for retirement, but for when they start their life, but if they chose a retirement account I wouldn’t discourage them.
If it turns out investing for retirement was a mistake, such as when they want to buy a car or house, they can always divert the course of their investing, and move on having learned whatever lesson they take away from their journey.
But it all starts with a simple passbook savings account, and the younger they start the better.
