Money and Kids: Why Having a Piggy Bank Isn't Enough
When I was growing up I had a savings account at my local bank. I felt proud every time I made a deposit, which usually consisted of my birthday money. As I got older, I used it to save my wages from my first real summer job. By the time I went away to college, I had accumulated a tidy sum of cash that I was able to take with me to school. But for some reason I haven't opened accounts for my children. Instead, we funnel all of their money into 529 college savings plans. Perhaps it's time I reconsider my thinking.
Yesterday was the American Bankers Association's (ABA) 15th annual Teach Children to Save day. To kick off the promotion, the ABA put out a press release encouraging families to open savings accounts for their kids. They argue that these accounts are still relevant today and I'm beginning to agree.
According to the ABA, teaching kids to save money can help foster self control and increase the likelihood that a child attends college. The organization also argues that children with a savings account have a better outlook on life and are more financially literate than their peers without accounts.
Well, I certainly can't weigh in on whether or not children with savings accounts are more likely to go to college or have a better outlook on life. I'm not even sure how one measures that. But it does seem tough to dispute that little ones who are used to depositing money into a bank account are going to be more financially literate than peers who simply stuff dollars into a piggy bank.
Opening a savings account could solve another problem that some small children have. I've noticed that many youngsters mistakenly believe that cash magically comes out of ATM machines. Perhaps if my kids physically brought their birthday money to the local bank they would better understand that you need to put dollars into an account if you want to take funds out at a later date.
Finally, opening savings accounts for my kids would also provide me with a tangible way to teach my children about banking in general and how to save money. I think they would get a kick out of walking to our local financial institution and waiting in line to deposit cash with a teller. So far my little ones can't grasp what a 529 college savings plan is. This really isn't so surprising since they can't read an online statement and they never had the actual experience of touching the money that is now in their names.
So are savings accounts antiquated? There's no doubt that my kids could get a better return on their money and even some tax incentives by parking their cash elsewhere. But I'm starting to think that the experience of having a savings account has a value of its own.
Do your kids have savings accounts?
Stacey Bradford is the author of The Wall Street Journal Financial Guidebook for New Parents.
Piggy Bank image courtesy of Flickr, CC 2.0.
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