By now, you should have a pretty good handle on the idea that kids and saving need to go together tighter than peanut butter and jelly. Of course, more than one way for kids to save is available. Two of the most basic are the traditional piggy bank and a no-frills savings account at a financial institution.
Depending on your child’s age, he might have an easier time saving if he has something tangible in front of him with which to work. Little kids like to actually have money in their hands, and they may need something physical when they want to count the money up and see how much is there. This has to do with the fact that both their fine motor and abstract reasoning abilities are still developing. If your kid is very little, the piggy bank usually works better. If your child is old enough to do some basic math and problem solving, though, then having the money out of sight likely won’t be an issue. For kids in the middle, an option is to let them keep everything in a piggy bank until it reaches a certain value—then go with them to deposit most of it in the bank account and start over again.
When you’re trying to decide whether a piggy bank or account is best for your child, think about how much your child is able to keep track of and do at a time. Piggy banks are better for little kids because they essentially are one-stop shopping—your child puts his money in and he’s done. With a bank account, your kid will have lots more to do, such as keeping track of his bank statements and filling out deposit slips. The advantage is that your child gets the exposure to the banking system and processes that he wouldn’t get using a piggy bank.
If you want to transition your child to a bank account so he gets the experience it offers, you can start by grabbing some deposit and withdrawal slips from your bank to use at home. When your child wants to work with the piggy bank, play the part of the bank teller and help him go through the motions of using the slips. Just assign an easy number your child will remember (e.g., 123, his birthday, etc.) to the piggy bank to use as the account number. You can get him to use a spreadsheet or notebook to track activity so he gets used to the idea of registers and statements.
A parent who has a ton of time on his hands is a rare breed, indeed. Even if your child doesn’t mind taking a lot of his day for money tasks, you might. When you get your child to use a piggy bank, you get the benefit of being able to work with your child on finance right at home. All he has to do is go to the piggy bank if he wants to put money in or take it out. With a bank account, your child actually has to go to an ATM or bank branch. Unless your child is old enough to have a driver’s license, you’ll be the one to chauffeur the trips.
A piggy bank has the advantage of being in super close proximity to your child, but it falls flat where interest is concerned. A bank account allows your kid to earn money with his money. Understanding that this can happen is a huge step in his financial literacy. Later on, he can apply the concept to other finance options such as bonds. The only thing to watch here is that some banks charge maintenance fees that may negate the interest benefits, depending on the account amount.
The bottom line
bankaroo gives you the best of both worlds.