Money Market Accounts and Early Saving Lessons
From massive credit card debt to mortgage default and inadequate retirement savings, a generation of Americans has developed more than its share of financial problems. Root causes include poor savings habits and a general lack of financial literacy. To help the next generation become financially savvy, you can use a money market account to teach your children some basic financial concepts and the value of saving money.
Your child's financial education can begin even before you set up a money market account. The following five steps may have valuable educational opportunities for your child:
- Shopping for an account. On Money-Rates.com, it is easy to compare different money market accounts. Just viewing the range of different money market account rates will demonstrate the importance of shopping around rather than just taking the first deal you see. Also, there are often conditions tied to certain money market rates, so this will help demonstrate that there is generally more than one factor involved in a decision. You can give children other examples of times when they may have to make a trade-off between two or more factors when making a decision
- Rudimentary book keeping. When you decide on a bank and open a money market account, show your child how to keep a record of deposits and withdrawals. Then compare that record to bank statements and add in any interest. The math involved is fairly simple, so most children in middle school can learn from this exercise
- Setting goals. As the child starts to accumulate money in the money market account, inevitably he or she will want to spend it on something. This is perfectly fine, because seeing the rewards of saving is part of what a child should learn. However, it is important to teach your child to buy things when they have set and met a savings goal, rather than dipping into savings just because it is there
- Understanding interest. One of the rewards of having a money market account is that it pays interest. While money market rates may seem quite low to an adult, to a small child even the few dollars the interest rate produces can seem like a significant amount of money. As children grow older you can teach them the power of compound interest, so they can see how savings gain momentum over time. In either case, the child should take away the knowledge that there is a tangible incentive to saving money
- Keeping track of money market rates. Money market account rates change over time, both across the market and from account to account. Keeping track of money market rates and re-evaluating the child's account from time to time can teach an early lesson about the value of being an active consumer. For high school students, this is also an opportunity to discuss the conditions that can affect interest rates
Starting a money market account for a child will be a source of tangible savings as that child grows up, and some intangible lessons that could last a lifetime.
Teach Your Children the Value of Money • Yahoo Finance: http://finance.yahoo.com/how-to-guide/family-home/12820