If saying “no” all the time feels exhausting, or if saying “yes” is coming at too high of a cost, you may instead say to your children, “here’s how”—by opening a savings account with them. This account can be a great way to start saving for your children’s future while teaching some valuable lessons about money along the way.
Teaching kids about tradeoffs with savings
Youth savings accounts are like regular savings accounts, only designed to accommodate the more modest needs of young savers.
Key features of these types of accounts usually include:
- Youth savings accounts typically come with a much lower monthly maintenance fees.
- Lower minimum balances.
- Joint ownership. In most cases, the account will be in both your name and your child’s name. You both will have the ability to make deposits to or withdrawals from the account.
- Transfer of ownership. When your child reaches a certain age, you may have the option of granting him or her total ownership of the account.
Consider encouraging your child to use a youth savings account for a portion of any gifts or allowance he receives, and help him set goals for that money. Over time, you can show him how interest accumulates on savings — helping him understand the tradeoff between spending and saving.
These habits may give your child the confidence to make smarter money decisions in the years ahead. You may also find that your child becomes more responsible when it comes to money, and that the distinction between need and want gets more defined. It may take some patience, but hang in there: Money management for teens is a topic well worth some quality family time.
As your child gets older and the savings account is transferred, he or she can access the account through Online Banking or a Mobile Banking app—maybe even using a smartphone purchased with money saved in the account.
Build a nest egg for your child’s future with a custodial savings account
Custodial savings accounts are different from youth savings accounts but are also intended to benefit your child over the long term.
When you deposit funds into a custodial savings account, such as a Uniform Transfers to Minors Act (UTMA) account, you make a permanent gift to your child. The money in the account officially belongs to the minor, who is not allowed to retrieve and use it until the age of 18 or 21, depending on the state of residence.Footnote1
In the meantime, you can make new deposits and manage the account on behalf of your child. You can also withdraw funds before the age threshold, as long as you use the money to benefit your child directly. For example, you might make a withdrawal to send your child to summer camp, pay for tutoring or contribute toward a first car.
Bear in mind that custodial savings accounts can offer tax benefits on interest income. Closely review the tax and financial aid considerations for your child before opening this type of account.
Lessons not lectures
Lecturing your kids on the value of money may get a lot of eye rolls and not much else—but putting those thoughts into actions by opening a savings account together may be a good way to get your kids involved in their financial future and teach some valuable life lessons when it comes to money and responsibility.
The right savings account depends on your goals and those you have for your child. Choose the type of account that’s right for you and your child, and together you can lay a strong base for your child’s financial future.