This is a question that has probably plagued parents since time immemorial, why should they open a children’s account for their kids when they can easily teach the fundamentals of saving money without a bank account?
In a way, this concern has merit. Parents, after all, can force or require their children to set aside some of their money for saving. But while this is just as effective in terms of instilling the value of saving, it doesn’t help your child understand one fundamental aspect of life: banking. Saving is only one part of opening a children’s account or a savings account. The other part involves helping the child understand how the basic banking system works. And as you probably know, banking will play a major part in your child’s life.
The importance of saving
Let’s look into how a children’s account or a junior savings account can help children learn the importance of saving.
Say, for instance, you open an account for your child and you set a certain percentage of his weekly allowance to go into his children’s account. This is already setting the child with the idea that saving works by putting aside money from what he regularly receives. As an adult, you should know that saving doesn’t excuse anyone, from people with mounting expenses to people who earn significantly little. This will inculcate a habit of saving, thanks to a children’s account -- something very few people today actually have.
Having a bank account is more than just a good habit, it’s also about earning money. Take note that even children’s accounts and junior savings accounts have good interest rates. For instance, your child managed to deposit an amount of 5,000 Singapore dollars in his savings account after saving it for more than three years. The bank offers an interest rate of four percent yearly. So on that amount alone, if left as is, your child can earn 200 Singaporean dollars just for keeping it in the bank. Would your child earn 200 dollars just by keeping his 5,000 dollars in a home safe or, worse, a piggy bank?
In essence, banking can help a child understand that he can only spend money he makes. Many young people fall under the trap of credit cards because they do not learn the basics of savings account first.
The importance of banking
There’s also the importance of teaching your child how banking works. You don’t need to get foreign currency account, a current account, or a fixed deposit account just so you can teach your child the various sides of banking. The very basic terms of a children’s account will give your child a general clue as to how all of these works.
Having a children’s account will help your child find out how banks work. Many uninformed children think banks are only bigger safes or piggy banks, wherein their money is kept and saved until they need to withdraw it. But you know this isn’t the case. The bank only serves as a transaction point. The money isn’t actually saved, it is used by the bank in order to earn money, which you get as the interest.
Children’s account also teaches the child that banks are the primary place where savings are made.
This, in turn, will give them a bigger idea of what interest is and how it is made. Interest is made from the money earned from an investment. When saving money on a savings accounts or a current account, but more particularly on a fixed deposit account, since it offers higher interest rates, your child earns the interest. However, your child would learn later on that the interest will be passed onto him if he takes out a loan, a credit line, or a mortgage later on in life.
Having a children’s account for your child is like a crash course on the basics of investments and loans and debt. It wouldn’t be too much to say that many people are under financial struggles today because they had no idea how this works early on in their lives.
Having a savings account or a children’s account will force your children to learn how to do basic bank tasks such as withdrawals and deposits. This seems rather basic but ask yourself: when was the first time you actually deposited money into a bank account on your own? On a deeper perspective, this teaches children about the value of independence. On a practical perspective this allows your child to do bank tasks on his own.
Of course, saving money in a children’s account or a savings account offers a child two things: safety and liquidity.
Money saved in a bank is essentially safe, since it cannot be stolen. Instill in your child the concept that money in a bank isn’t physically saved there, in a manner of speaking. It’s like the bank owes your child money, except your child can take it out at any time. This basically means you and your child wouldn’t have to worry about the money being stolen. When a bank falls, the bank account holder is eligible to his money, or part of it, thanks to insurance.
Children’s accounts are essentially savings accounts, so your child will be offered maximum access to his or her money. You can choose to have a passbook or an automated money machine card in conjunction with the children’s account, so your child will be able to get his or her funds with ease. Children’s accounts generally do not have checkbooks or debit cards, although there may be “lite” versions of these for the junior bank account.
All of these may seem like a tall order. Banking is not something you can learn in an instant. But essentially, with your guidance, you can help your child fully understand the concepts behind banking -- the concepts and characteristics that make banking an essential in life.