Credit industry statistics published by Sallie Mae in "How Undergraduate Students Use Credit Cards" dated April 2009 reveal that the average college student carries $3,173 in credit card debt. After graduation from college, the combination of this revolving debt and required student loan payments can be quite a burden to young adults. In fact, a study published by MP Dunleavey in "Young, Carefree...and Deep In Debt" for MSN Money dated January 2005 reveals that between 1992 and 2001, the incidence of young adults filing for bankruptcy increased by 55%, a trend which is continuing to rise. The study goes on to explain that the typical young adult uses 25% of their income to pay back debt.
Helping Children Avoid Debt in Adulthood
High credit card balances and early bankruptcies are quite a startling picture, but fortunately, this can be avoided by teaching children the value of money early. By working to accumulate money in an account, setting goals, and waiting to purchase items they really want, children learn not to impulse buy, to save for emergencies, and to live within their means. It all starts with their first savings account.
When Children Should Start Saving
In order for the idea of saving to impact a child, it is important that the child be present when the account is opened. There is no magic age for when children are ready for this lesson, but a parent can look for signs of savings readiness. These include an understanding that money has value, the ability to count to one hundred, and performing basic arithmetic such as adding and subtracting.
How to Select the Right Savings Account for a Child
Once children demonstrate a readiness to save, parents must do a bit of research to select the best account . Many banks and financial institutions offer accounts specially geared toward children. When comparing accounts, it is important to look for minimum balance requirements, monthly service charges, and any other fees that may be assessed on a regular basis. It is also a good idea to compare interest rates when looking at various financial institutions. Perhaps the most important thing to consider is the convenience of the bank or credit union's locations. In order for savings education to be effective, trips to the bank to make deposits must be done regularly, making it unwise to select an institution that is far from home or difficult to reach.
What to Bring When Opening a Savings Account for a Child
Before the first trip to the bank, it is necessary to gather the documents that the bank will need to open the account. Typically, banks require an adult to be listed on accounts for minors, so parents should plan to bring a government-issued photo identification such as a drivers license, state identification card or passport. They will also need their social security numbers, a physical address, their date of birth, and a telephone number where they can be reached in emergencies. For their child, parents should bring their birth certificate as proof of age and their social security number. Parents should also bring along the minimum deposit required to open the account.
What to Talk About Before a Child's First Visit to the Bank
Parents should set aside time to talk to their child before going to open the account. It is best to give a general idea of how banks work without giving too much detail, which may become overwhelming. Start off by explaining that banks are places where people put their money to be safely kept and that because banks are glad to have people choose them to protect their money, they give people a small amount of extra money called interest into their account each month. Tell them that by visiting the bank and putting the money into an account, they will be able to save up money that they can use to buy things they really want and give them an idea of what will happen when they visit the bank.
Next Steps for Teaching Children to Save
After it has been determined where the account can be opened, parents can move on to the first trip to the bank and other lessons with their children, including setting savings goals, understanding banking, and eventually, opening a checking account.
 |
