Some studies show that one of the most crucial components of financial literacy is giving kids hands-on experience with money. First hand experience of interests accruing in their savings account can make seemingly complex concepts, like compounding interest, become easier for your child to understand.
It is every parent’s responsibility to raise money-smart kids. Take the time to educate your child about this topic while they are still living under your roof. Aside from introducing them to the concept of saving by opening a savings account for them, you can also let them practice proper money management using a debit card for kids.
Nowadays, many parents give their kids hands-on experience managing and spending money through innovative financial tools like the BusyKid VISA® Prepaid Spend Debit Card. Safe and easy to use, it allows kids to make transactions approved by their parents. What’s even better is it has the same protection as the other VISA® debit cards!
When Is the Right Time to Open a Savings Account?
The quick answer: as soon as they demonstrate interest. Parents now have the option to set up an investment or custodial savings account for their kids. Typically, children have to be elementary-school age before they can take control of their savings account.
As your kids start to receive money (i.e., from allowances or for their birthdays), consider that a good time to sit down with them and teach them how to make a saving and spending plan. It is also recommended that you empower them to decide how much they will save and spend.
While you can make suggestions and provide some guidance, it would be best to leave the final decision to them. One of your primary goals should be to teach your kids to make saving a habit. Even if you gave them the power to decide how much to set aside, you are still teaching them how to save.
Introducing Debit Cards to Teens
As soon as your kids become teenagers and have more income (i.e., from part-time jobs) and more expenses, it would be a good time to introduce them to debit cards for teens. It would also be an excellent time to help them create a budget and differentiate their needs versus wants.
Teaching them how to use their debit cards responsibly can go a long way towards setting them up for financial success as adults. It will also help if you teach them how to reconcile their accounts and manage their spending accordingly.
Getting a Credit Card
Your kids can be added as authorized users on one of your credit cards when they turn 13. They can apply for their own credit card at 18. However, some verification requirements can make it difficult for them to qualify until they are 21.
Deciding when to let your kids use a credit card is also a tricky question. Ideally, they need to have a solid financial habit and understanding before engaging with a credit card.
However, adding your kids as authorized users can be a wise first step as you will be helping them build credit. You will also have the opportunity to monitor their usage and offer valuable financial guidance when needed.
Using Financial Accounts as Teaching Tools
Teach your kids about account selection
As soon as your kids start using debit or credit cards, use it as an opportunity to teach them about key concepts and crucial account features. For instance, it would be a great time to teach them about interest rates or how fees can impact how much they owe or save.
Monitor their activities
Keep tabs on how they are managing their savings, debit, or credit accounts. This will give you plenty of opportunities to teach them valuable financial wisdom based on their spending patterns. Be quick to also step in if you notice anything alarming like mounting debts or fraud.
Make room for mistakes
Real-world experience with money will not always go smoothly. At times, you need to allow them to make mistakes so they can understand the consequences of their decisions. It’s ideal for them to learn valuable financial lessons early while the financial stakes are not that significant yet.
Ensuring the financial success of your kids can start with a savings account. However, it should not end there. When they start using other financial tools like debit and credit cards, be sure to guide them so they can use them responsibly and to their advantage.