Making sound financial decisions as an adult starts with the lessons learned as a child. Want to help kids learn how to manage money in the “real” world? Start by matching their developmental phase — from toddler to young adulthood — with the appropriate bank account based on age, needs and goals.
Ages 3 to 5: Building the basics
Even before starting school, children may be able to learn the basics of money. However, kids this age require visual cues to make ideas tangible. Coins and bills accumulating in a piggy bank, along with explanations of the value of each, are a good start. Once a piggy bank reaches a certain “full” level, help your child deposit the total in a simple savings account (and maybe let them indulge in a special treat, too).
Ages 5 to 8: Setting priorities
Delineating between wants and needs is something most early elementary-age children can do. Some parents also use the “spend-save-donate” rule as a way to divide money: spend one-third, save one-third, donate one-third. A simple savings account is a useful tool to stash allowance and gifts. Look for a no-fee, no-minimum-balance option as well as rewards for regular deposits in minors’ accounts. This may prove to be a motivating factor for your child to skip a toy and save instead.
Ages 9 to 12: Expanding the foundation
Late elementary-age children may start to earn money here and there from chores, and they can also grasp the basics of budgeting, saving for a goal and earning interest. One way to help them learn is to have them set a purchasing goal that is months away (a savings account may help). An online calculator can help show how long it will take to accumulate this total and offers a great way to discuss the basics of compound interest.
Ages 13 to 15: Connecting money and responsibility
As children age, a savings account remains a steadfast element of their growing financial picture. That type of account can be especially useful if children start to earn money regularly or have a purchase goal that is years away — say, a car when they are old enough to drive.
In addition, some children in this age bracket may be ready for limited — but immediate — access to money: a checking account with a prepaid or reloadable debit card (and minimal or no fees and a low minimum balance). You regularly transfer money such as an allowance to the card, and your child uses it like a regular debit or credit card. They’re limited to what’s on the card, so there are never overdraft fees or overspending.
Ages 16 to 18: Establishing independence
Children in this age bracket can start to shift money management to a two-tier approach: a savings account and a student checking account. Helpful boundaries for the latter may include spending and withdrawal limits set by parents or caregivers. In addition, this may be a good time to help your child create more formal budget categories for everything from coffee drinks to gas for a car. Implement a regular time where you sit down with them to review budgets and see what they actually spent; then help them make adjustments as necessary.
Ages 18+: Maximizing accountability
As your child gains independence to launch from your home, either to post-high school education or a job, a savings account and a checking account (as well as good habits of monitoring expenses) are important. One last point of discussion: Any post-18-year-old may be inundated with credit card offers. Discuss the importance of building a good credit score and avoiding easy credit (and rapidly accumulating debt) while they’re young.