By Jo & Carl Violetta
As parents, we want to do everything we can to guide our children towards becoming happy and fulfilled adults. Financial literacy and sound money management skills are two of the greatest gifts we can give our kids.
Focusing on financial literacy at home can help kids learn how to save money, make smart financial decisions, and grow into financially savvy adults.
Pocket money is an effective tool to teach kids about managing money. For example, encouraging kids to save their pocket money for special purchases teaches them how to wait for what they want.
Opening a bank account for your child to save their money also offers a valuable opportunity to teach them about compounding interest. But how do you choose the right bank account for your child? There’s plenty of choice when it comes to kids’ bank accounts, so it can feel a bit overwhelming.
Here’s what to consider when looking for a bank account for your child.
Bank account or money box?
I like to think about the child’s age before I decide whether or not to open up a bank account for them.
My husband Carl and I have two kids, Eva (19) and Marcus (6). Marcus doesn’t have a bank account yet; he uses a money box.
For younger kids, I prefer them to have a money box rather than a bank account. Physical money offers a tactile experience. When children can physically touch and see their money, it’s less of an abstract concept for them. They can practice maths skills by grouping and counting different denominations. They can physically watch their money grow in their money box.
If you do decide to open a bank account for your child, try to find an account with low or no fees.
Most kids’ bank accounts have no fees. Be aware, though, sometimes kids’ bank accounts will say that they have no fees, but they actually have some sneaky hidden fees. For example, the bank may advertise the account as having no fees, but this is on the condition that your child only makes one withdrawal per month. You need to read the terms and conditions carefully.
Kids bank accounts typically have fairly generous interest rates. But again, you need to read the terms and conditions. Sometimes interest rates can drop if your child doesn’t make regular deposits or if they make withdrawals above what is prescribed in the terms and conditions.
Some kids’ bank accounts will automatically switch to another type of account when your child reaches a certain age (usually 12 years old). When the account switches over the interest rate and fee structure may also change.
Before you open a bank account for your kids, you also need to consider the potential tax implications. There’s a threshold of how much interest the child’s account can earn before they may have to pay tax on that interest. Have a chat with your accountant or visit ato.gov.au to make sure you’re fully informed.
Bank account comparison sites
There are plenty of helpful comparison websites that allow you to compare different savings accounts for your kids. Be mindful, though, that these websites rarely compare every kids’ bank account on the market. Also, sometimes they show sponsored bank products at the top of their list of recommended bank accounts.
Opening a bank account for your child provides an excellent opportunity to build their financial literacy and develop good savings habits. To find the right one for your child, set about half an hour aside to do some research. And remember, when comparing accounts don’t be seduced by headline interest rates and promises of low fees, like any financial products, it’s essential to read those terms and conditions.
If you’d like to learn more about how to teach kids about money, download our free guide: violetafinance.com.au/how-to-teach-kids-about-money-guide.
Jo and Carl Violeta are self-confessed numbers nerds, parents of two, and co-founders of the award-winning business, Violeta Finance.
They’re a husband and wife team who are passionate about empowering their community with financial education, love the odd glass of wine, and get a kick out of helping families achieve their homeownership and financial dreams.