Helping youngsters learn about money and various types of financial matters will aid in setting those kids up for to experience a better financial situation as they age. Financial independence is becoming extremely important in a world where just the basics are consistently increasing in price. In this guide, we will share some basic information that should be shared with all youngsters as they grow and mature.
What is a Bank and Why Should I Put Money in One for Saving?
A bank is a specially-designed business that accepts monetary deposits and offers many financial services and products – such as loans, credit cards, and mobile banking. All banks are insured by the FDIC. This means that it is safe from being stolen or being lost. The following should be shared with youngsters:
- The FDIC Logo – The first and one of the most important ways you can help a youngster learn about money is to show them the FDIC logo and explain that it provides security for money in the bank for -at least – $250,000.00. Immediately following the lesson, you should take your child to a bank and ask them to find a FDIC logo. Then, you should have them open up a savings account where they can start saving their money. You may encourage savings by seeking out sales in your local grocery store, using coupons, looking up various careers and learning about the salaries associated with that position.
- Explanation – You should explain to the youngster that money may be deposited in both a regular bank account and a savings account. You may liken the savings account to a plant, explaining that the more that you put into it, the more it will grow to larger amounts. You should explain that the checking account is the one that is typically used to make purchases and that is accomplished through writing a check, using a debit card, or an ATM card.
- Savings Goals – Finally, you should discuss why it is important to save money. Examples include to make a large purchase, to have money for emergencies, and to fix and/or replace things owned. By saving money in a bank, the youngster should learn that this is a very important step because thew money cannot be taken, stolen, or damaged while stored in a bank.
The Concept of Goals and Savings
When teaching youngsters about money, it is essential that you explain the concepts of goals and savings. The child should learn that goals are those things that you have a desire to achieve or that you have a yearning to accomplish. The goals may be short-term or long-term.
A savings goal is something to do with what you have a desire to buy. In order to achieve the goal, you must teach the child that they should save their money and discipline themselves not to spend anything until the savings goal is accomplished.
For example, if a child wants to attend the local fair, they may save up for the gate entrance and the tickets or the arm band for the event. This is an example of a short-term goal. A teenager may want to purchase their own vehicle. This is an example of a long-term goal.
You may openly discuss ideas for how the youngster can earn money and possibly even estimate how long it will take in order to earn the total amount required.
Budgeting and Saving
The next way to educate a youngster on money is to teach them about budgeting and saving. You should teach them that a budget is a plan that is highly organized that can help the child in tracking how much they spend, what they spend the most money on, and how much is saved over a specific time frame.
During this lesson, you should teach the child the difference between a “want” and a “need”. Of course, a “need” is what cannot be lived without having it – like food and clothing. A “want” is something you can live without, but would – very much – like to have.
By incorporating a budget into a child’s life, they will be able to learn exceptionally valuable lessons at a young age. This could actually prevent your child from getting into debt at a later time in their life.
Sharing
When you teach youngsters about money, it is important that they learn that helping the community, organizations, or some other type of charity is important. Sharing will allow the child to understand that money can have a positive impact in the lives of others. For example, donating money to a local food bank, or giving to Toys for Tots around the holidays are both great ways to share money and make a positive impact on someone’s life.
Compounding Interest
While not completely necessary, it is important to teach youngsters about compounding interest. When you make money, you need that money to make money for you. This will help increase savings dramatically – especially if it is making more money through compounding interest. You should include the following information when teaching a youngster about interest:
- When money is deposited in a bank, it is called “principle”.
- When that principle makes money through earning, that is referred to as “interest”.
- Once interest is obtained, that money is yours to keep.
- “Compound interest” is the amount that you earn on your principle after the first month and that helps in ensuring that the money actually grows into larger amounts.
- When you deposit money in a bank and you earn interest on that amount, that is added together to create a new “principle”. The next time that you earn money on the new amount, and each time thereafter, that is the compounding of interest.
- When looking for a bank account to save money in, you will want to select a bank that has the highest interest rate because this will ensure that your money grows more quickly.
- You must save money in a bank that is backed by the FDIC only. That way, the money actually works for you to make more money.
Earning Money
Now that the youngster in your life has learned about creating a budget, banks, savings, interest, and other principles of financing, it is time to teach them how to earn their money. You can explain that most people earn money by getting a job – which is a position that requires you to do a certain task and earn money in return.
The ability to obtain a legal paying job may be at 14 years old or 16 years old – depending on the location. Many young adults may elect to become involved in a career. That is, a position that a person works most of their life. Examples of careers include welding, law enforcement, the military, and/or a doctor.
Examples of jobs include working as a cashier at a fast-food business, stocking at a local grocery store, or delivery driving.
Loans and Credit
If teaching a youngster about money, you must – at the minimum – touch on the topics of loans and credit. If they want something but do not have the money on hand, they may obtain a loan or use credit to make the purchase. The strongest points that should be made is that using loans and credit make the purchase cost more due to the interest charged on the purchase, it is always best to spend cash, and avoid taking out a loan or using a credit card – if possible. That which the youngster should take away from this lesson is the following:
- A loan is borrowing money for some purpose with the promise to pay it back at a later time with a payment schedule that is agreed upon. The amount of the loan is principle and the fee imposed on the loan is the interest. The time it takes to pay back the loan is the term.
- Credit is typically given through the means of a credit card that has a designated initial amount on it. The money may be spent and a payment is required each month (that includes interest) until the balance on the credit card is paid off.
Conclusion
In this comprehensive guide, you have been introduced to various topics that will help you teach a youngster about money. We here at Somerville Bank feel that it is imperative that all kids should be taught the financial aspects highlighted in this guide. In addition to this, we encourage that every child has a savings account. If old enough, we recommend both a checking account for everyday purchases, and a savings account to save up to meet both short-term and long-term financial goals.
We would like to invite you to visit one of our many branches with your child. Not only can we set up a savings account for your child, but we can also educate them on other financial services that we offer youngsters. Click on the following link now to find a location near you: https://somervillebank.net/locations/
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