The Best Way for Kids to Learn About Bank Accounts
Learning about how a bank account works is one of the most fundamental financial lessons. By about 8 years old, kids are old enough to understand the basic concepts involved.
What the kids see is adults going to an ATM and receiving money. Too bad that’s not all there is to it, right?
They don’t automatically grasp that we have to earn the money, then deposit it into our bank account, withdraw some to pay for the things we need/want and (hopefully) save some. These are abstract concepts to kids. They need to experience it themselves.
So, the first step, is for them to learn the simple workings of a bank account.
When my kids were 8 and 10, we opened child savings accounts for them. The kids came with us to the bank so they could see the set-up process. Since they were not 18 years old yet, they had to be “custodial accounts.” Meaning they had to be in my name also. Once they turn 18, we’ll change the accounts into their own names.
Our kids thought getting a bank account was REALLY cool. To them it was an indication that they were growing up.
Each had saved some money that we took to deposit.
We discussed how they are going to use the account: Any money they put in we’re going to leave in there and not touch it. When they receive any money in the future they will also deposit a portion of it. Our target amount to save is around 20%. However, we just keep it simple by using round numbers (such as $5, $10, $20, etc.) that are close to this percentage. Then they can spend the rest on whatever they want. This way they can begin to develop a habit of saving.
We look at the account balances online periodically. When they make a deposit, we look to see it added to their balance. They also see the interest deposits and we talk about how they are calculated. Over time they see how their balance grows.
By going through this process and talking about it periodically, they learn the bank terms such as “deposit,” “balance,” “interest”, and “withdrawal.”
For now, I just want them to practice saving with their savings account.
When they get a little older (around 15) we’ll add a checking account for spending money and a debit card so they can become familiar with how that works.
Developing an understanding of these basic banking concepts is part of the foundation required to move on to more advanced topics later. Starting early is an important step in developing financially literate young adults.