If you’ve read Rich Dad Poor Dad you probably learnt that introducing kids to the reality of how money works, earliest possible, proves beneficial not only to them but also to you as a parent. You rest assured that your child is not cruising on cloud nine thinking that once they become adults, they are assured of having money or that it is a guarantee for them to have money just because their parents do. Especially in this digital era where online shopping is the norm. It is easy for kids to spend unconsciously, without an ounce of guilt because they’re oblivious of the effort put behind earning every centavo.
Therefore, apart from helping a child mature, financially, let us look at other importance of introducing a child to a savings account.
- Financial awareness
Opening a kid’s savings account introduces a child to the language of banking which improves their financial awareness. Words like deposits, withdrawals, budgeting and saving. These are key terms in the language of banking that will help kids develop their sense of money management, independence, and also financial intelligence. Kids also become exposed to financial products such as credit/debit cards and even financial apps. 5 financial apps you should have.
It doesn’t have to be technical at first. As a parent, you can take advantage of the resources you have at home to teach financial awareness by exposing a child according to their capacity. This practice will help them learn from the patterns and realise how to make use of their savings account.
- Financial responsibility
For instance, a kid who keeps on asking for things and seems to lose interest in them in a short spun might rethink their actions if it means having to complete a certain task so as to get a quarter of the money they need to buy whatever they want. This teaches them that money doesn’t come by easily just because one needs it. That money has to be earned first and it shouldn’t be wasted. It also teaches the child to be responsible and that they need to save their “hard earned money” until they can meet their priorities and attain their set goals.
Research states that by the time a child is 5 years of age he/she is developmentally capable of saving. Therefore not only does a savings account give a child hands-on experience hence building their saving mindset, but it also teaches a child financial responsibility.
- Financial education
When a child has a savings account, they get to learn basic math. This improves their accounting skills and over time they develop a financial programming mindset. Not only does financial literacy expose a child to how money grows and compound interest, but it also teaches them to be conscious of what they spend their money on. Studies have shown that children who had savings accounts during their childhood were likely to hold diverse asset portfolios and accumulate more savings as young adults.
- Financial habits, attitudes and mindset
Opening a savings account also comes with guidance on saving. The child begins to think of the ‘loads’ of money they will accumulate, once they save more. This mindset alone helps a child to value delayed gratification. With the help of a parent, a child gets to learn planning and budgeting and this helps in developing helpful effective financial habits and attitudes. They also learn to monitor their savings keeping track of their money and discipline. Over time the child comes to differentiate between needs and wants. This practice proves beneficial as it is important for a child to develop a healthy financial mindset, something they can continue to rely on even when they attain adulthood and start working. Teaching Children How To Budget
- Decision making
The financial education provided on the kid’s savings account also comes with feedback. Both from the bank and from the parent. This enables a child to improve their financial skills and implement their own financial decision when an opportunity to spend their money arises. It gives a child the chance to make mistakes and also learn on the best saving choices they should adopt. Therefore, a savings account does not only mould a child with proper planning and management skills, but it also equips a child with the power of financial decision making. A skill that might be a luxury in future once a child becomes an adult and becomes employed.
“If you leave it up to other parts of society, such as the employer or private sector, it’s going to be a very unequal process,” Lusardi, a professor from George Washington University says.
“Learning through mistakes is costly and inefficient. Children should be taught the right way at a young age.” Lusardi says. It helps children become financially responsible adults and avoid mistakes in future.
Since it is obvious that a child will emulate the behaviours of a parent when it comes to spending, the parent should set a good example by matching their words with actions hence avoiding conflicts. It should also be the responsibility of a parent to expose a child to personal finance education, an investment that will prove beneficial to a child’s life in future. Here are 6 Things I Wish My Parents Had Taught Me About Finances
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Featured image via Michigan News