Savings accounts for kids don’t need to collect dust, even if they’re not particularly growing at the moment. Try out one or all of these 3 activities to keep your child’s money education going despite their stagnant balance.
Savings accounts for kids tend to collect dust over the years, just like scientific calculators − post-high school Statistics class − and baseboards behind couches (at least in our household).
Pssst…and if you haven’t actually opened a savings account for your child up yet? You’re in good company, Mama Bear! You’re one lunch hour away from knocking this task off your list of things you wish you could get done.
Whether your kid’s savings account is collecting dust or was just created, let’s sprinkle some Money Prodigy magic over it with these three money activities.
Money Activity #1: Give the Account a Purpose By Naming It
You may not have given consideration to the purpose of your child’s savings account. And that’s okay. Savings accounts for kids are often set up in order to save up for one of the biggies in their teenage/early adult lives, like their first car, first/last month’s deposit on an apartment, a study abroad opportunity, or college.
And your kid − aside from fantasizing about the money growing into enough to afford the latest and greatest Pokémon Go accessory − probably hasn’t given it much thought either.
Guess what else? Your idea for the savings account is probably going to be quite different from your child’s. After all, you’ve been in this thing called the “real world” for quite some time now. You aren’t wet behind the ears, and you know that this thing called life takes money.
This is the perfect opportunity to sit down with your child and ask them what they want the account’s purpose to be. But you need to add some context to this conversation.
Not enough to crush their dreams, but enough to steer their purpose-picking with a semi-realistic goal in mind.
Then after you do this? You’re going to help them change the name on the account to something fun that will remind them of the account’s purpose.
Rename the savings account the money goal.
Things to save for + name examples:
- Vacation spending money: OCMD (that’s code for Ocean City Maryland for my non-East Coasters) Spending Money
- First car: Sweet Sixteen Fund
- College (though you can make this more specific to make it seem reachable, such as textbooks for the first two semesters): Textbooks!
Money Activity #2: Shop Around for the Best Interest Rate
I know, I know. Switching savings accounts for kids or becoming a “rate chaser” might not sound like a fun activity for YOU. But you know how you’ve already done lots of inconvenient things over the years − like allowing them to feed themselves with a spoon (the current phase we’re in) and picking out their own interesting outfits − to teach your children important lessons?
This is just another one of those.
You want your child to be hardwired to seek out money-earning opportunities, and one way to do this is have them look for the best interest rate deal. This activity will show them why doing so is worth lots of money to them over the long run.
Because let’s face the fact that − and if your kid’s savings account has been collecting dust over the years, then this can’t be illustrated any closer to home for you − we tend to keep what we have and not make a change. But if you were to find an account that had a 1% difference, over the years of just keeping it in the same place in the 1% higher account could make a BIG difference in the amount of money accumulated.
Step #1: Help your child to find the APY (Annual Percentage Yield) interest rate on their current savings account. This information is better than just the monthly interest rate because it takes into account compound interest when figuring out how much the bank account will earn them.
Step #2: Have your child research savings account interest rates online. If you’re uncomfortable letting them into the wild west of the internet alone, help them out. They are looking for different APY, or the annual interest rate a bank is offering on their accounts. Find a good aggregate savings rate site like NerdWallet.
Step #3: Have your child calculate the potential amount of money this new interest rate could earn compared with their current account. Have them use this compound interest calculator to create each of the two scenarios off a hypothetical amount of $1,000.
- Use this compound interest calculator. Fill in $1,000 for the initial investment amount. Then $0 for the “Contribute” amount, and have them fill in the number of years left that they have until they take over the account (typically at age 18 or 21, depending on the state you live in) in Step #2. For Step #3, fill in your child’s current savings account APY. In that same step, have them fill out the new interest rate they can get from their research. Finally, have them pick however often the account is compounded (hopefully monthly). Click “Calculate”.
To analyze the results, hover your mouse over the chart. You want to pay attention to the “Base Interest Rate” (what their account is earning right now), and the “Variance Above Base Interest Rate”, or what they will earn with that new account.
Subtract the total earned from the new account from the base interest rate earnings on the last point on the chart. How much would opening this new account earn them in extra interest?
Step #4: Discuss the pros and cons of switching the account based on the interest rate (if you find a higher one).
Pros and Cons Cheat Sheet:
- Does the new account have any fees the old account does not? Or vice versa?
- Is one a brick-and-mortar bank and the other an online-only bank?
- Time it takes to switch an account and re-associate any accounts back to it
- Convenience of making deposits
Step #5: Decide together if you want to switch accounts or not.
Money Activity #3: Create a Savings Account Statement Binder
Yes, we’re a society that has moved from paper to paperless. But moving back to paper statements for your child’s sake could really teach them some good money lessons.
Step #1: Go ahead and switch to “Paper” statements on your child’s savings account.
Step #2: Have them pick out a cool new binder + give it a name (like “My Savings Binder”), or decorate an old one you have around the house.
Step #3: Each time a statement comes in the mail for them (how cool that they’ll receive actual mail with their name on it!), have them punch holes in it and add it to the binder in chronological order. This is the perfect opportunity for them to note the beginning and ending balances, and how interest earned has changed that. It also might get them more excited to put some of their allowance into their savings account, a win for everyone.
Which one are you most excited about doing with your little one?