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Are Your Children Green When it Comes to Money?

This is the first part in a five-part series called "Learn to Earn."

Do your children like to spend money? Of course they do – who doesn’t? Fleishman-Hillard recently reported that there are 72.3 million children under the age of 18.1 This is a larger group than during the height of the post-WW II baby boom. Spending by teens is currently measured at $180 Billion a year and one in three consumer dollars in the U.S. is either spent or influenced by a teen. That breaks down to approximately $100 a week per teen.2

We need to help our teens be educated about the ways they can manage their own money. Where is the safest place to stash their cash? They can keep it in a piggy bank or they can hide it under their mattress. But if it just sits somewhere they are actually losing money!

If they keep money in a savings account, the bank will pay them interest. And of course the more interest they earn they’re making even more money.

By the time they are five years old, take them to the bank to open a savings account. Children under the age of majority cannot open an account without their parent or guardian. The bank will want identification such as a birth certificate and they will need your children’s Social Security Number. They will have your children fill out a signature card, as well.

Sometimes the bank requires a certain amount of money called a minimum deposit to open an account. The minimum deposit may be as little as $5 or as much as $100 or more. It all depends on the bank you choose.

There are different kinds of savings accounts; each with different features. You should review the different types of accounts with your children and help them choose the one that is best for them.

Statement Savings is the most common bank savings account today. With this type of account, the bank sends your children a statement every month. The statement shows how much money they deposited or withdrew and how much interest they earned in the account.

Some places also may offer Passbook Accounts. The account owner has a book that must be presented to the bank every time a deposit or withdrawal is made. The transaction is posted to the book. Earned interest is also printed in the passbook. Passbook accounts usually pay the same amount of interest as statement savings. Most banks don’t offer Passbook Accounts any longer but some still do.

If your children have some money they don’t plan to use for a while they can buy a Certificate of Deposit (CD). They would deposit money, called principal, in the bank for a specific length of time, such as six months or a year. During that time they are not allowed to withdraw the money. If they do, there is a stiff penalty. Because the bank knows how long it will have the money, it can lend it without worrying about when your kids will need it. Because of this, your young saver will earn more interest than they would in a regular savings accounts.

A Money Market Account is another kind of savings account that pays more interest than a regular savings account and it lets you withdraw money by writing checks. It’s a great deal, but there are some limitations. Your kids can usually write only a limited number of checks each month from this account. Also, money market accounts usually require a large minimum balance. Since you can withdraw your money at any time, banks pay a little less interest for this kind of account than for a CD.

As a parent you can start saving for your children in a special savings account called a Trust Account. Over the years, you can deposit money into it on a regular basis. When the children are old enough (often 21 years old), they take over the account. By then the account has earned a great deal of interest because no money has been withdrawn. The children can use the trust account for big expenses like tuition or a mortgage.

These types of accounts have different names, such as Universal Gift to Minors (UGMA) or Universal Trust To Minors Account (UTMA). The good news is that because the money is in their name the taxes they pay on the interest is lower. The bad news is that legally it’s theirs and if they decide, when they become the age of majority, to buy a car instead of using the money for college, they can.

These basics of banking are important for your child to learn. They are tools they will use throughout their lives.

Source: All text by Neale S. Godfrey; all text and characters are the sole property of Children’s Financial Network, Inc. All rights reserved. 2007.
1,2 Web site:, as of 1/2007.

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Are Your Children Green When it Comes to Money?

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