This month kicks off 30 days of celebrating financial literacy. As a firm, we believe in making sure our clients understand their financial plan, how they are invested, and are aware of their complete financial picture to increase their financial literacy.
What is financial literacy?
According to Investopedia, financial literacy is the ability to understand and effectively use various financial skills, including personal financial management, budgeting, and investing. [i]
Financial literacy is not a destination, but more of a journey one takes through life to understand money. Knowing how to create a foundation for your relationship to money and how you can use it to further your dreams and goals while also maintaining your livelihood is part of financial literacy.
Often, we have conversations with a parent who asks when they should start a savings account for their child. This is a common question and one we hear often. We all want to do what we can to take care of those we love. Below are a few ways to know if your child is ready to learn about financial literacy.
Bank on Financial Literacy
We all want our kids to grow into adults who have healthy finances and financial habits—and it’s crucial not to wait until they’re fully grown to teach them these habits. So the right time to open a savings account for your child might be earlier than you think.
We recommend clients open an account once their child meets these three criteria:
- They are old enough to have a basic understanding of how banks work.
- They are mature enough to handle money thoughtfully (on an age-appropriate level).
- They have or receive money.
Generally, an 8-year-old[ii] will be able to meet the above criteria to a satisfactory degree. But if eight feels too early for your child, it is a good idea to at least get started before they become a teenager and begin to use money more seriously.
Lifelong Benefits of Starting Young
There are several benefits of starting a savings account when your child is young:
- Opening a bank account for your child provides the perfect opportunity for them to learn how to handle money thoughtfully. In addition, it can teach them personal habits, like the satisfaction of saving up and the importance of carefully balancing cost versus value when they make a purchase.
- It can also teach them the joys of saving. If your child gets any money for a birthday or Christmas, or if you give them an allowance, encourage them to save this money in their account. Let them check their account balance online, and they will feel pride as they watch the number grow higher and higher.
- A bank account can also help your child understand the banking system, especially if you explain how it works[iii] or encourage them to read about it [iv]. If you make deposits or withdrawals in person at the bank, take your child with you to make the bank seem tangible and real.
Raising kids with financial literacy gives them the best opportunity to thrive long-term. It could reduce your stress later on, too.
With these simple tips in mind, let us know if you would like any advice or assistance in choosing or setting up a bank account for your child. We are here to help and will do our best to answer any questions you may have. You can also book an appointment with us if you want to have a more in-depth conversation.
Disclosure: Emerald Advisors, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.
[ii] Farrington, R. (2021, July 1). When to Get Your Child a Bank Account and Debit Card. Forbes.com. [Online] Available at: When To Get Your Child A Bank Account And Debit Card (forbes.com).
[iii] (2016, August 1). Consumerfinance.gov. [Online] Available at: When’s a good age to open a savings account for my child? | Consumer Financial Protection Bureau (consumerfinance.gov).
[iv] (2022). Bank and banking. Kids.Britannica.com. [Online] Available at: bank and banking – Kids | Britannica Kids | Homework Help.