Editor’s note: This article was sponsored by First Fed.
The holidays are upon us! Before buying another toy for your child, consider the gift of savings. If your kids are old enough to ask to buy things, take the opportunity to start teaching them about saving and spending. As a bonus, First Fed is including a $9.90 credit for new First Savings accounts through the end of 2022.
A gift of saving
Positive financial habits can be established early by setting up bank accounts for kids at appropriate ages and stages in their life. According to a PBS article on money habits, “By age 3, your kids can grasp basic money concepts. By age 7, many of their money habits are already set.”
Paying a child for chores is a way to get them excited about earning and saving money. Deposit their earnings in a “piggy bank” or clear jar so they can see the progress as they add coins. When their piggy bank is full, they can deposit their savings into their bank account.
Nearly 39 percent of all children ages 8–14 have a personal savings account, according to a 2022 survey by Statista. You can start a savings account when they are even younger, so it has more time to grow. Kids’ savings accounts typically offer interest with no monthly maintenance fee. Kids can review their account balance in regular statements. Encourage your child to create a wish list for “nice-to-haves,” such as trendy sneakers, video games or a trip to Great Wolf Lodge. Offer to match their savings towards reaching these top goals. Suggest that your family members contribute to your child’s savings account instead of gifting more toys, particularly if your house is already stocked for fun. Family members can give each kid up to $16,000 annually, tax-free.
A gift of independence
Many teenagers and even preteens go shopping with friends during lunchtime, before or after school, or on weekends. Some businesses have gone cashless during the pandemic, so teens may require a debit card in order to buy lunch or snacks.
A teen checking account with a debit card is a great way to teach money management skills through budgeting, spending and saving. These accounts typically offer no monthly fee, online access and a complementary debit card. As a parent or guardian is required for setup when the primary account holder is younger than 18, the adult can provide guidance while giving teens some financial independence.
A first debit card may feel like freedom, but it also reinforces financial responsibility. A debit card gives teens access to cash when needed and is particularly handy in the event of emergencies. Using a debit card instead of cash, while developing awareness of account balances, is excellent training before opening a credit card as an adult.
“A debit card can make life easier for both the teen and their parents,” explains Dawnya Scarano, director of customer experience at First Fed. “Our First Checking account with contactless debit card is designed to give teens secure and easy access to funds, while providing parental oversight.”
If your teen has a part-time or summer job, the checking account provides direct-deposit options for receiving their wages. They can also connect their account to Apple Cash or Square’s Cash App to make easy payments among friends and to small businesses.
A study by TD Ameritrade showed that 50 percent of teenagers have held a job outside of their home and that 40 percent have started following a budget. Whether they are saving for college, retail therapy or a night out with friends, teens who can access banking tools are taking an important step towards financial empowerment.
A gift for the future
Beyond savings accounts, consider setting up goal-oriented accounts for your kids that have long-term benefits.
An education savings account (ESA) can be established to save for education expenses. The contributions are not tax-deductible, but the distributions are tax-free if they are used to pay for qualified education expenses.
WA Guaranteed Education Tuition (GET) is a prepaid college tuition plan that allows families to buy college credits at the current unit price to use in the future when their children are ready for college. The unit price remains apace with current college tuition costs, so buying them sooner is better. The money you withdraw is tax-free when it is used to fund qualified higher education expenses.
Wages from teens' first jobs can also be placed into a Roth IRA retirement account. Money contributed is taxed in the current year, but earnings grow tax-free if the account holder waits until they are 59 ½ years old to withdraw them. Decades of growth can add up to significant earnings.
Smart habits for a lifetime
When your child becomes an adult, they will have many financial firsts to celebrate. A first credit card, a first 401K account, a first auto loan and a first mortgage, to name a few. Developing smart money habits as children will give them a better foundation to successfully navigate these responsibilities.
Ready to get started?
Give your child the gift of good savings habits! Through Dec. 31, 2022, First Fed will credit each new First Savings account with $9.90 in honor of its 99 years in the PNW. Call First Fed at 800-800-1577 or stop by the Bellevue branch at 1100 Bellevue Way N.E., #6.
First Fed is a member FDIC and an equal housing lender.