As parents hoping to raise financially savvy kids, one of the best things we can do is expose them to banking concepts at an early age. Savings accounts for children offer many great personal finance lessons such as the importance of saving money, the magic of compound interest, and the basic mechanics of banking.

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When I was in high school I took a class called “Citizenship.” The coursework was divided logically between a number of “civic” topics such as taxes, politics, law, and even a very brief introduction to personal finances.

Since I began working the day after I turned 16, I was very familiar with basic checking and savings (well, I had a savings account, but save the $0.03 interest accumulations each month, I wasn’t very good at adding to it).

Back to Citizenship 101. The time came for students to balance our own checking register, write out our own checks and complete a deposit slip. My classmates were stumped, and I even made a little fun of a friend of mine for not knowing how to fill out a check.

He innocently responded that he had never even seen his folks write a check, and he joked that the only bank he knew of was his piggy bank. I suppose that is probably the average level of exposure kids are given to the world of personal finance. That is, until they are on their own and must learn on the fly. I distinctly remember thinking my kids would know how to navigate banking well before they had to know how.

Opening Savings Accounts for Children

It’s funny how fast 20 years seem to fly by. Fast forward a couple decades and here I am with kids who have been introduced to the concept saving and investing, but have not yet learned the mechanics of banking. Shame on me. My 16 year-old self would kick my butt for not teaching this before now. Better late than never, I suppose.

Last Saturday, my daughter and I strolled into our local bank to open a savings account for her. Until now, she saved at home, and I deposited larger amounts into an account for her online. While the interest rate was a little better for her online savings account, investing there caused us to bypass the act of allowing her to make a deposit herself – something I believe is important, psychologically.

With my guidance, she walked up to the teller with some of her hard-earned allowance money and completed deposit slip. In return, she received an updated account notice reflecting the amount of her deposit and increase in her balance. She updated the balance in her savings account register.

In a few weeks, we’ll receive her first savings account statement. I’ll point out the interest that has accumulated since the last statement (her first introduction to passive income), and we’ll update the register to reflect the new statement balance. At some point, I know she’ll want to withdraw a bit of this money for a purchase, and I’m fine with that. In fact, I’ll encourage it (and use it as another teaching opportunity)!

Witnessing the reverse of the deposit process is just as powerful. She’ll fill out a withdrawal slip, receive some cash from the teller and spend it. She’ll then have to reduce her savings balance in her register, and she’ll notice the balance reduction on her statement (and a smaller interest accumulation next month).

By then, she will have probably have forgotten what it is she took the money out for in the first place, and it’s my hope that the next time she considers withdrawing money, she remembers the disappointment she felt watching her balance dwindle.

A few years down the road, we’ll also add a student checking account for our children. We’ll practice completing checks, balancing her checkbook, and I’ll probably include something like “Lunch Money” in her allowance and let her write the check to her school to fund her account.

In the mean time, I’ll let the kids help me pay a few bills by check (I think I’m down to only one or two bills that I still write checks for). This way, they’ll get a lesson in how to write checks, and how much it costs each month to have water come out of the faucet!

Have you introduced your kids to banking concepts? Share your experience in the comments below.

If you have children in high school, you only have a few years left to instill solid financial skills. One of the best ways to do this is to open up your own finances. Instead of hiding your financial information and hoping for the best, consider having an honest discussion with your child about both the good and bad decisions you’ve made with money.

Here are some ways to include teens in your family’s financial portrait:

1. Give them a peak at the family budget. This will actually provide a realistic picture of what it takes to run a household.

2. With discretion, reveal how much money you make. This can be quite an eye opening experience! I honestly had no clue how much money my parents made until I was in high school and it definitely put things in perspective. There’s also little use trying to hide this information; you must reveal your income on your child’s federal application for student aid.

3. Don’t hide your debts, if you have them. By the time kids are in high school, they aren’t oblivious to how stressed you become when the Visa bill arrives. Be honest. Let them you know you didn’t always use credit wisely and explain what you want them to do differently.

4. Don’t be afraid to say no. Of all the things I “had to have” and never got, I don’t remember any of them. I quickly got over my desire or decided to start saving up myself.

5. If you still pay bills by check, let your child write it out. This will include them in your family’s finances. If you’re utilizing online bill pay, you can have them type and click. Currently, I sometimes “pay” our family cell phone bill and the credit card used for gasoline.

6. Let them know ahead of time whether you’re paying for all of, some of, or none of college costs. You don’t want to shock them with news on graduation day that they’re completely responsible for financing their education. Also mention whether or not you would be OK with funding any sort of business endeavor they’ve created.

My own parents have been quite open about their finances and I definitely feel it’s been a positive move on their part. Knowing what they did right and wrong will no doubt help my own finances.

Note from Frugal Dad: I’m impressed by Ryan’s financial awareness at such a young age. I was well into my 20’s before I finally began to wake up to my own financial mess, and it took another couple years to finally take action on improving my situation. Very well done, Ryan – you are well on your way to building significant wealth having identified these concepts so early.

Last week my kids participated in a unique budgeting exercise at their school, carefully disguised as a Santa’s Workshop. The idea was the kids were to visit the workshop a few days in advance of its official opening to develop a shopping list for friends and family, along with a Christmas shopping budget.

Our daughter came home with a pretty good estimate of what she’d need to complete her shopping. $32, to be exact. Most impressive? That included gifts for five or six family members – even her little brother! We negotiated a small advance allowance along with a few extra chores to work on over the weekend and handed over some of the shopping cash.

That morning, the kids were allowed to visit Santa’s Workshop before classes started and were allowed to select a number of gifts up to their budgeted amount – not a penny more. Imagine if we shopped under such strict guidelines. Spend the cash you have available for Christmas and leave the store. No credit cards; no layaways; no 90 days same as cash.

As parents, we don’t have to wait for Santa’s Workshop to teach these same lessons. Rather than buying gifts for your kids to give to siblings and friends, give them a budget and allow them to do their own shopping (with your assistance, of course). Here are a few ideas to reinforce with kids around the Christmas shopping season:

• Start saving for Christmas way before the decorations are going up. We save for Christmas all year around, in a dedicated online savings account at ING Direct. Simply divide your annual Christmas budget by 12 months and move that amount to savings. The ultimate budgeting challenge for kids would be for them to set aside a little allowance each month throughout the year for this very purpose.
• Have a list, check it twice!  Whether you are shopping for groceries or toys for kids, it’s always a good idea to have a list. Stick close to the list and you improve your chances of staying close to your budget.
• We don’t shop with money we don’t have. In my roundup post the other day I mentioned seeing customers in front of me charging Christmas presents on credit cards. My daughter is also old enough to notice this, and often gives me a knowing look when we witness it together. Remind your kids that buying stuff on credit cards is a bad idea, because you usually wind up spending more up front, and paying more for each item when interest charges are tacked on.
• Don’t forget giving. We do not give gifts with the anticipation we will receive them. To reinforce this idea, have your kids give a little of their own money to a cause they are interested in, or a local church or shelter. The more personal, the better.

Image via: eHow

Financial pressures are one of the top reasons for the breakdown of relationships. Faced with debts, mortgage payments, bills and keeping children fed and clothed, couples can become stressed and begin to take out their angst on each other. Worse, they can even blame each other for the pressure they’re under, or accuse the other of not pulling their weight. Before you start throwing plates at the walls and storming off to slam doors, check out our guide to getting through it together.

1. Work Together

If one of you is shouldering most of the financial pressure, eventually you’re going to blow your lid. Just because one of you might be the main breadwinner doesn’t mean you shouldn’t discuss your financial worries with your partner. Talking through financial problems will help share the burden, meaning that the breadwinner will feel less resentment towards the other partner. Equally, the other partner will not feel left in the dark about the family finances. Talking through issues together might also mean that you find a solution more quickly; after all, two heads are better than one.

2. Draw Up a Budget

It seems obvious, but often, a good solid budget is something that struggling couples overlook. Instead, many cut back randomly on this or that, without looking at the big picture to see where the biggest savings could be. So, it’s better to sit down and go over a whole month’s income and expenditure to figure out where the hole in your pocket is. Doing this together is vital for your relationship. One partner simply telling the other to stop buying brand-name baked beans or going to the pub is likely to breed resentment.

3. Make Sure You Both Treat the Kids the Same

If you are parents, it might be an idea to talk about what you both spend on the kids, and how. In most cases, parents pay for things for their children out of joint accounts with each other’s knowledge, but think about less formal spending. Does Daddy slip the kids extra pocket money? Has Mum been giving in to pleas for new toys before birthdays or Christmas in secret? This can be one of the toughest conversations of all, as nobody wants their children to go without anything, but you need to make sure you know how much you and your partner are both spending on them to keep it under control. It’s unhealthy for children when one parent says “no” to a new skateboard, whilst the other buys it for them. This will help your children appreciate the value of money much more in the long run, too.

4. Be Prepared for Career Changes

Different couples approach working and earning differently. In some relationships, one person is the main provider, in others, one person does not work at all, and sometimes both earn around the same. Be prepared for some tough conversations about work. One of you may have to find more or better-paid work. If one of you does not work, perhaps it’s time to start thinking about returning to the work force. This can be a delicate situation; if one partner has not been working for a long time period, returning to work can seem daunting. The partner in the relationship who has been the main provider might feel as though they have let the other down for not being able to keep the household afloat. It doesn’t need to be that hard, though; work through the conversation together with tact and without accusations, and you could find a way out of debt.

5. Get Some Help

Sometimes you can’t work out problems with your partner because you are both too close to the issues to see straight. If you’re struggling financially, see a financial advisor, and go together to hear advice and make decisions. Likewise with your relationship. If financial pressures are driving you apart, fixing the money issues might not fix your relationship, so seek guidance on that too. You’ll be relieved to know that hundreds of couples seek relationship guidance every day; and it can be done cheaply, too

Many future parents are worried about the costs of raising children.  I certainly was.  However, with three little kids running around my house, my wife and I have discovered that there are some simple actions or attitude changes that greatly reduce the cost of raising children.  Since our family decided to live on one income, it became necessary to minimize our expenses.  We have practiced (or currently follow) all of the ten suggestions.  It has literally saved us thousands.

1. Consider cloth diapers

My four year old is old enough to know it’s nasty.  Recently, my four year old inquired, “Mommy, why are you putting your hand in the toilet?”  Mommy explained, “Because I need to rinse out your sister’s diaper.”  To which my daughter responded, “That’s nasty.”  It might be nasty, but it sure is cheap.  36 diapers and $50 will give you a 6 – 12 month supply.  By the way, if you are going to go with cloth, consider a Snappy (replacement for safety pins).  I never quite got the old safety pin thing.  They require focus, determination, and a lot of luck.  Cloth diapers would never have worked if a friend did not point us in the direction of a Snappy.

2. Forget your brand allegiance

Seriously, do you think your baby will be happy just because they are wearing Huggies?  Perhaps children who are washed with Johnson and Johnson body soap will be more adjusted in adulthood.  Everyone knows only Carter kids enjoy their childhood.  When it comes to babies, brands really play the trust card and leverage love.  Brands want you to ask yourself, “You do really love your kid, right?”  As a result, we feel like if we love them we need to give them the best so we somehow think spending more money on them is giving them the best.

3. Buy used furnishings

When we were expecting our first, we went and bought a used crib and change table. Some folks were concerned about the safety because standards change and we didn’t know the condition of the items.  Seriously, what is going to happen if the baby’s crib breaks and she falls a foot to the ground and lands on a mattress?  I think worse things will probably happen.  By the way, our third child is now enjoying the same furniture and it is still holding up.

4. Reuse items for all your children

I am the youngest of three boys.  I got used clothes.  Now that I am all grown up I still buy used clothes.  I don’t think I am “damaged” because of the experiences.  Until you know that you are done having kids find a place to store all your baby products, toys, and clothing, because they will come in handy again.

5. Network

You are probably not the first person who ever needed a crib.  In fact, there is probably someone at work or church who has a last child growing out of a crib.  They want nothing more than to find a good home for it to open up some space in their room.  Take notice of families who are a stage ahead of you and let them know if they are ever interested in selling used items that you would appreciate being notified.  We got our first car seat from a friend whose last baby outgrew his car seat around the time our baby was born.  Our rocking chair was given to us from a teacher friend who didn’t need it in the classroom anymore.

6. Trade services

One of the results of fatigue is increased spending. Typically, things that are more convenient cost more.  After a busy day and a cart full of crying kids you are more likely to find convenience foods.  Consider asking someone to take your kids for a while in exchange for taking theirs at a later time.  This time could be used for grocery shopping, catching up on house cleaning, and yes, just resting.

7. Skip the Happy Meal

Does a two year old really need all that food?  What we do when we head out is get a cheap sandwich, cut it in half and have the kids share fries.  The advantage is we save money, save food, and the kids leave full (which, by the way, is the goal of the fast food dining experience).  The disadvantage is that the kids don’t get a little toy that they will play with for about 6.8 seconds.

8. Focus on creating memorable experiences

Once a week we used to take our kids to a sit down restaurant because we wanted to have a special experience.  On my day off we have a family tradition of eating lunch on the porch.  One day our daughter said she likes eating on the porch much more than at the restaurant.  We learned a valuable lesson that spending more does not mean it is more important to your children.

9. Understand the relationship between toddlers and toys

Our bathtub is full of cute little bath toys.  We have a pudgy little pig that squirts water.  There is the happy hippo.  And of course, the cute cow.  In order to wash the kids’ hair we have a plastic cup we got with a meal at Olive Garden and a free promotion plastic cup I got from some event.  Want to know what the kids love to play with?  The cups!  Sometimes they also fight over an empty liquid soap container.  Kids are so creative and naturally playful that they can play without a ton of toys.  We have a Rubbermaid container where we store their toys.  The rule is that all the toys must fit in the container.  If they get new toys, then something from the toy collection must be given away.

10. Set appropriate gift boundaries

From the start, sit down with your spouse and decide on the function of gifts.  I know that sounds silly, but why do you give gifts?  What do you hope to communicate?  What does it reveal about yourself?  Gift giving expectations are created; they are not naturally there in children.  If you give large gifts (beyond your means) each birthday or Christmas, the kids will expect just as large of a gift.  You may need to cut back on gifts.  Remember, cutting back on gifts is not cutting back on love.  You can still show your children love and not give expensive gifts to them.

I recently attended a birthday for one of my kids’ friends, and was blown away by the amount of cash gifts they received. Apparently, giving cash is cool again, and I was impressed by the generosity from mostly family members, but a few family friends, too.

My kids occasionally receive a little birthday money themselves, along with gift cards and other small presents from friends and family. Since it is their birthday, we let them take a little bit of money to the store and pick out a toy or game that they’ve been wanting. But we like to encourage them to save the rest of that money in a variety of places.

Local savings account. Savings accounts at a local bank or credit union are practically a financial rite of passage for kids. While they don’t offer particularly good rates, local savings accounts do offer a great way to introduce kids to banking. Take them along and let them fill out the deposit slips and update their balances at home.

Online savings account. As kids get a little older introduce them to online savings account to score a higher rate on their savings, and to take advantage of other features. I like ING Direct (read my ING Direct review) online savings accounts because they update accrued interest daily on their savings dashboard. It’s a powerful lesson on compounding interest for kids to see money being added to their bank account as they sleep. If you aren’t a fan of ING Direct, check out some other top online banks.

529 college savings plan. Most kids are not worried about paying for college until it comes time to pay for college. So I think it is a good idea for them to contribute a little along the way. Invest a little of this “found cash” for your kids in the best 529 savings plan you can find.

Savings bonds. My kids received some savings bonds when they were little to “put up for college.” Later, I convinced the person that gave them to let us convert them to cash and send to the kids’ college savings funds, where I hope the money will get a better return. Sure, they are interesting and colorful and all that, but apart from novelty there isn’t that makes me want to buy and hold them for the kids over the long term.

Individual, kid-friendly stock. I generally dislike the idea of picking individual stocks because I am not good at it, and because I worry over diversification. However, I think it is safe to take a small percentage of your portfolio, say less than 10%, and invest it in a handful of individual stocks you know something about. Same goes for kids. Not long ago we invested a little money in two companies kids are familiar with, McDonalds and Disney. Later, we might add Coca Cola and Mattel to the mix. Be sure to reinvest those dividends, and hold the stock for the long term.  Who knows what a few hundred dollars invested in Microsoft twenty years ago would be worth today.

Where do your kids park their “birthday” money?

The June 2009 edition of Money magazine featured an article on how to Unspoil Your Kids. The article included an interesting chart outlining “What to Teach When,” as suggested by Jon and Eileen Gallo, authors of The Financially Intelligent Parent.

I like the idea of breaking up financial lessons by age group, recognizing of course that some kids “get it” before others, despite their age. For instance, my daughter is fairly money-savvy and back when she was just seven or eight could explain in adult terms what a mortgage was, how taxes were collected, etc. She probably got that from hanging out with her frugal dad.

My son, on the other hand, at five years-old, is more interested in a shiny penny than a paper dollar.  He’s yet to recognize the differences in currency (despite our best efforts). Actually, I think he does understand it on some level; he just likes shiny coins.  Who could blame him?

I’ll include the age brackets below, along with the suggested lessons from the Money article, but as usual, I put my frugal spin on the ideas as well.

Ages 5-9: Teach Basic Money Skills and Develop Work Ethic

Assign simple chores. Chores in the frugal household have evolved as the kids grew older. When both kids were small they were responsible for making their beds in the morning, and taking dirty clothes to the laundry room. My oldest, now ten, helps set the table, unload the dishwasher and put away dishes, put away clean laundry, and is still responsible for keeping up her own room.

Start a weekly allowance. The younger kids are the more often they should get paid, because budgeting any longer than a few days is hard to do (even for some adults!). As kids get older, stretch their paydays out a bit so they get used to stretching out those dollars, too. My daughter is paid allowance every other week on the same day I get paid.

Talk about money decisions and values. My blogging colleague at Moolanomy recently shared a great thought on avoiding the phrase, “We can’t afford it.” I like the concept, and have caught myself using that same excuse with my children. Be honest with kids and tell them that if you spend money on a new Wii game, you won’t have money for the grocery store. Life, and money, is about choices and the opportunity costs of making one choice over the other.

Introduce the idea of charity. The best way to make your kids givers is to lead by example. Take them along when volunteering (when possible), and encourage them to allocate some of their allowance to giving to a cause they care about.

Ages 10-13: Kick It Up a Notch With Skills and Responsibilities

Open a savings account. Every kids should have a basic savings account, complete with a ledger for recording transactions. It’s a great introduction to banking, and the idea of compound interest. Help kids complete deposit slips initially, but encourage them to complete deposit slips themselves, keep up the receipt, and record it in their ledger at home.

Offer extra chores as a way to earn money. My kids often bring me a sales flier they’ve found sitting around and say, “I really, really want this new (insert latest Disney movie, lego set, etc.), but I don’t have enough money.” What a perfect opportunity to reinforce the idea of working for money. Find some extra chores around the house and offer to pay kids enough to help them earn the difference. My kids are familiar with the $0.05 per weed plan of helping Dad around the yard.

Raise allowance to cover more of your child’s expenses. One allowance hack my wife and I are introducing this upcoming school year is to include my daughter’s lunch money in her allowance. It’s my opinion that she buys her lunch too often, and I hope to encourage her to “brown bag” it like Dad usually does. It’s fun to eat out, or buy a school lunch once a week or so, but it is almost always cheaper (and healthier) to make something from home.

Ages 14-18: Coach Kids On Using Checking and Credit

Open a checking account; deposit allowance into it. In addition to a savings account for kids, teen years are a good time to introduce checking accounts. Encourage teens to deposit their allowance, and other found money, into checking and make appropriate contributions to their savings account.

Introduce debit or prepaid credit card and monitor (by 16). Along with a checking account, help your teen get set up with a debit card. I don’t advocate introducing teens to credit cards, but that’s a personal decision. Teens can accomplish everything they need to learn about using plastic with a debit card. Later, when they are earning their own money, they can apply and pay for their own credit card if they decide, but I would not let them use plastic and me pay for it. Kids need to understand the transaction behind shopping with a credit card, and using their hard-earned dollars to pay for the items when the bill arrives.

Encourage part-time job (by 16). I have mixed feelings on this suggestion. I’ve worked since the day I turned 16. I worked in high school, and all the way through college. While it was nice to have spending money, it was a necessity in college. Either way, it put a strain on my grades, and my social life (who am I kidding, what social life?).  The only time I didn’t work was during football season when it wasn’t possible to keep a job and practice. I would encourage my own kids to take up things like babysitting, pet sitting, lawn care, or a similar entrepreneurial service–it beats the pay from most retail or fast food outlets and they’ll have more schedule flexibility.

Ages 19-22: Set a Path for Financial Independence

Expand allowance to cover a semester (if in college). I disagree with this suggestion because a semester is a long time. Imagine if we had to budget our income on a quarterly basis, rather than month-to-month. I would extend allowances to no more than a monthly allotment which covers things like rent (if living off campus), some money for utilities and food, and a little for miscellaneous college expenses–you know, like pizza, iTunes downloads, and football tickets.

Provide financial help only if it fuels independence. We have a goal to gift a down payment to our kids when they get married (which may or may not happen outside of this age bracket). My wife and I married young, and could not afford a home for many years. I don’t agree with buying an entire home for kids, but helping them with the down payment seems like a way to help them get on solid ground early on.

Continue to encourage charity. Continue to lead by example, and encourage teens to make time for helping others. I was encouraged to hear about college students spending Spring Break along the Gulf of Mexico in the wake of Hurricane Katrina – not to party, but to help those hurting rebuild their lives. We need more examples like this, and it shouldn’t take a natural disaster to spur a giving spirit.