Kids Finance | Basic Savings | Open Online Account

In its most basic form interest income is a simple computation. Most savings accounts (local or online) pay their interest monthly. Let's pretend your kids savings account offers 1.2% APR. What does that mean to me if I have $100.00 in my child's account?

The computation looks something like this:
$100 x (1 + 1.2%/12) = $100 x (1.001) = $0.10

Doesn't look like much does it? In truth, it isn't. How do you make the earning of a dime more tangible to your son or daughter?

I don't know about you, but I have yet to meet a kid that doesn't love chewing gum. It just so happens that a kid can still go to the store and find a dime gumball machine. Better still - you may be able to pick up a small one for your home.

How do you make use of a gumball machine to make a point about saving? Try this:

Teach your child about earning a dime as in the example above - the $100, the 1.2% interest rate, the one month wait for the interest to be paid. Then...

...ask your child how many gumballs he or she can buy with the money earned during the month? Obviously the answer is one.

Ask your child if he or she would want a gumball if she had a dime. 99.9999% of the time your child will say yes.

So now your child should be equating a dime earned with a gumball desired. That is a powerful concept for a child to know. From today forward, everytime your child has a desire to get something they will intuitively know something must be exchanged to get it.

A gumball will equal a dime, or a month of waiting with $100 in a savings account. But what if your kid has a friend over and he wants a gumball too? Teach your child that one of three things must happen to be able to afford two gumballs:

1. There must be $200 in the account
2. The interest rate must be 2.4%
or 3. The kids must wait two months instead of one

Any of these scenarios will produce the desired two dimes to buy two gumballs.

The way to achieve high results is to set high expectations. A child who doesn't have any self-imposed limitations will reach their highest potential. How do you keep the topic going but make it of gigantic proportions?

The answer is to take it back to the gumball machine, or whatever your child's favorite snack is. Ask your child if she could have as many gumballs as she wanted every month, how many would that be?

Whatever the answer is, turn that into a discussion about figuring out how much the savings account will have to earn to produce the desired gumballs. Do it in a similar manner to how we did the two gumballs example above - i.e. if 'G' is the desired number of gumballs:

1. There must be G x $100 in the account, or
2. The interest rate must be G x 1.2%, or
3. The child must wait G months

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You're going to think I'm crazy for saying this, but consistently framing discussions with your child about their wild dreams and fantasies into the form of learning opportunities can become fun. This becomes particularly more evident when dreams and figuring is translated into real actions that produce real results.

Your kid wants a new bicycle but doesn't have the money. He mows lawns every weekend to earn money. How many lawns will it take to earn enough for that bike?

Your daughter wants to take dance lessons for $40/mo - how many lawns will she have to mow (or other laborious chore to do) to be able to take those lessons?

The discussions you have today will make the really big, hard discussions (car, college, house) that come later much easier. Maybe unlike other children in your neighborhood - your children will be ready and able to have those discussions with you. Visit our personal finance and online banking review website for more tips and ideas about simple fun ways to bring finance and economic learning into your life.