It’s never too early to teach your child about the importance of money, healthy spending habits and financial literacy. Instilling smart money management at a young age can help your child immensely as they enter adulthood and start to earn money. A study conducted by the University of Michigan concluded that children as young as five already had distinct emotional reactions to spending and saving money. While parents use various techniques to teach their kids about the importance of money, opening a savings account can be a great place to start. This article will explain the differences between a youth savings account and a regular savings account, discuss the different types offered by financial institutions, how to open one for your child and standard best practices.
Why You Should Open A Savings Account For Your Child
A youth savings account can be a building block to basic financial literacy and an early introduction to how banks and credit unions operate. A savings account can also be a great place to store money earned from chores or money received from events like birthdays or holidays.
There are a lot of basic financial literacy lessons you can teach your kid by using a savings account. Some of the benefits include:
- Teaching children to be frugal with their money
- Goal setting and achieving
- Encouraging healthy financial habits
- The value of a dollar
- Teaching responsibility
What Are The Main Types Of Accounts A Child Can Obtain?
When considering opening up a savings account for your child, you should know two main types.
Youth Savings Account
A child savings account can usually be opened at most traditional banks or credit unions. Generally, there is no minimum age requirement, but the account must be a joint account between the parent and the child. Often, your child will have access to the funds at any time, and as a parent, you can monitor how the funds are being used.
Most financial institutions offer unique benefits when opening a youth savings account. For example, Arizona Central Credit Union’s CU Grow Youth Savings Account provides families with a financial literacy program as well as a savings passbook to keep track of the money in the account.
Custodial Account
While the savings account mentioned above is depository in nature, a custodial account is another savings account with different rules and goals focusing on long-term investment. A custodial account may also be referred to as a Uniform Transfers/Gifts to Minors Act (UTMA/UGMA) account.
When opening this type of savings account, the account and funds are held in the name of the minor but are controlled by the parent. Unlike a depository savings account, the money put into a custodial account cannot be accessed until the child turns 18. Additionally, custodial accounts may come with some tax implications.
What Should You Look For In A Youth Savings Account?
Not all child savings accounts are created equal. Certain banks and credit unions may offer different rates and balance requirements. Ensure you are doing some research and shop around to find an account that works best for you, your child and your family’s situation.
Here are a few things to keep in mind when shopping for a savings account for your child:
- Balance requirements and fees: You should be looking for a savings account that does not require a minimum balance or associated fees —at least keep the fees limited.
- Competitive interest rates: One of the most important things to consider when opening a savings account for your child is the annual percentage yield. The higher the APY, the faster your child’s balance will increase.
- Special features: While additional features and perks such as easy online access, prizes for deposits and birthday bonuses aren’t as important, they are things that should be considered as well.
How To Open A Savings Account For Your Child
Some banks or credit unions may have deferring processes when signing up for a youth savings account. For example, some may allow you to apply online, while others may require you to be at a branch to complete the process.
No matter how the specific process works, most financial institutions will require you to present one of the following documents to open a youth savings account:
- Social Security card
- School photo ID
- Birth certificate
- Passport
Best Practices For Your Child’s Savings Account
Once you’ve gotten your kid’s savings account set up, there are a few things you can do to help incentivize your child to save money and teach them the basics of financial literacy.
One of the best ways to do this is to offer rewards for reaching a savings goal. For example, you can offer to put $15 in the savings account every time they save $30 or do a match once they’ve reached an amount like $50.
Celebrating the achievement of reaching a savings goal is a great way to get your child to appreciate the value of money. The celebration doesn’t have to be extravagant but doing something special like going out to dinner at your kid’s favorite restaurant will help your child understand the importance of saving money.
Another great way to teach your kid about financial literacy is to explain how the account works. Of course, this would depend on your child’s age and understanding of basic finances, but reviewing the terms of the account and explaining things such as fees associated with maintaining the account and balance requirements, is a good starting point. Later on, when they have a better understanding, you can dive into specific terms such as interest rate and APY and how they affect your savings.
Open A Youth Savings Account With Arizona Central Credit Union
Shopping around for a perfect youth savings account can seem like a drag, but at Arizona Central Credit Union, we’ve got you and your family covered. Our CU Grow Youth Savings Account offers some of the best savings terms and benefits available on the market. Visit any of our nine full-service branches throughout the Grand Canyon state or check out our website and contact us today to learn more about youth savings accounts and other financial-related services.
