My child asked about opening a svgs acct

[JohnDoe]

We've been stuffing her money into an envelope and yesterday she asked me if she can open a bank account. She's only 8 and has about $350 saved.

Do banks allow this? Does it have to be a joint account? Any advice?


Thanks
JD

 

[brewer12345]

You can open a custodial account in your child's name with you as custodian. Any bank or broker can do this for you.

 

[justin]

Yep - I just opened accounts for our 10 month old and our 2 year old to stick birthday/christmas money into until they are old enough to blow it on frivolous toys and candy! Plus the bank sent us free t-shirts and rulers with each account opened.

 

[JohnDoe]

Thanks guys.

I think I should open the acct with Fidelity so it will actually earn interest, instead of a local bank account yeilding .05 %.

Sound good?

 

[lazygood4nothinbum]

huh, and i would have thought that today they'd learn first about contracts with their cell phones before learning about interest with their bank accounts.

 

[TromboneAl]

If she puts $350 in the bank, and after a year only gets $17.50, she'll never want to save again. I recommend you give her 20% interest, or more.

 

[LOL!]

One of the problems with these bank accounts for kids is the possibility that fees will overwhelm any interest. To overcome that, here's what we did recently.

We opened a checking account for our daughter. My spouse is also on the account. In order to get free everything, no minimum, one has to have direct deposit of paycheck into the account. To do this, my spouse is having my daughter's allowance taken from her paycheck and direct-deposited into the checking account. My spouse can do this since her company can do direct deposits into multiple accounts that you designate -- even small amounts like an allowance. My daughter then uses her ATM/debit card to pay for things.

 

[Calgary_Girl]

We opened a child savings account for our 14 month old daughter and I'm on the account as a joint account holder. We deposited all the cash gifts she's received (she already has over $1,100 in it! ).

The account is designed for children and every month when the statement comes, it explains in very simple terms the "amount put in" and the "amount taken out". She won't be able to access the account through the ABM until she's older and even then she'll need my approval to get an ABM card. I'm just worried that when she's 16 she'll take $500 and blow it on a stupid pair of jeans

Then again...maybe she'll pick up some of my financial savy...

 

[Nords]

We've been stuffing her money into an envelope and yesterday she asked me if she can open a bank account. She's only 8 and has about $350 saved.
Do banks allow this? Does it have to be a joint account? Any advice?

I bet you think she's talking about a real bank!

Read David Owens' "First National Bank of Dad" and set her up with a "Bank of Kid" account (or whatever she decides to call it) that pays her a penny per dollar per month. Or, if she understands percentages math, try 0.5% interest per month.

She'll test your promised "on demand" ATM a few times to make sure that she hasn't been scammed. Then you guys can start having conversations about "Would you rather buy this now or wait another month and earn $1.75 interest? How long would you have to wait for the interest earnings to buy this for you?"

After a year of this our kid decided she'd rather have a checking account. Our local credit union humored her desires and she really enjoyed being able to whip out her checkbook at the school book fairs. When she kept having trouble with sloppy writing and math mistakes she started using Quicken and online statements. We had a few tears but after five years she completely understands checking accounts. A few months ago I retired from my assigned duties as checking-account assistant, so now she has to figure out her own damn stupid mistakes.

David Owens has created a financial monster. We've moved up to a "Bank of Kid CD", a "Kid 401(k)", a CD ladder, her own credit card, stock-picking, and a real Roth IRA. She's almost 15 and, despite her successes, has already decided to eschew stock-picking in favor of cheap international index equity funds. In another year or two she'll be ready for the Bogleheads' Guide.

We made the decision early in her "Bank of Kid" system to not allow loans, overdrafts, or deficit spending. So she still has a lot to learn about loans & mortgages and government. But she did her own 2006 tax return on Turbotax.

This summer she's taking the summer-school version of "Career & Life Planning", including a module on financial management that promises to teach new sophomores how to handle a checking account. I'm waiting for the inevitable teacher's "WTF?!?" call.

 

[brewer12345]

Since my kids are really young, I have custodial accounts for them with Schwab. All the money goes into SWBGX until there is enough of it to do something better.

 

[NinjaPigeon]

I bet you think she's talking about a real bank!
David Owens has created a financial monster. We've moved up to a "Bank of Kid CD", a "Kid 401(k)", a CD ladder, her own credit card, stock-picking, and a real Roth IRA. She's almost 15 and, despite her successes, has already decided to eschew stock-picking in favor of cheap international index equity funds. In another year or two she'll be ready for the Bogleheads' Guide.

She's off to a great start. I was almost twice her age before I learned some of this stuff But I'm a bit of a slow learner!

 

[gtmeouttahere]

This is a great idea, our kids have been getting small allotments into a MM at the bank from the inlaws. Anyone know the tax ramifacations for young kids if I were to transfer it into an index type fund? My 11 daughter has been asking about dabbling in the market but am kinda lost. Do kids that age have to file a return?

 

[SecondCor521]

This is a great idea, our kids have been getting small allotments into a MM at the bank from the inlaws. Anyone know the tax ramifacations for young kids if I were to transfer it into an index type fund? My 11 daughter has been asking about dabbling in the market but am kinda lost. Do kids that age have to file a return?

If they make "enough", yes.

IIRC there are two different limits; if they trip either one then they have to file a return. The first is earned income, which is in the $3,000 range. The second is unearned income, which is in the $800 range. If you're below both those limits, you don't have to file a return. Even if her earnings are above that, there is an option where you can report her income on your return, which saves some hassle but might result in paying higher taxes.

2Cor521

 

[JohnDoe]

Opened a savings acct on saturday for my DD(8). She was proud...signed her name and everything.

Interest rate of less than 1 half of 1 percent. I could put it in a CD(it's under $500) and get 2.9%.

Now I remember why I hate banks.

 

[Helena]

Public schools used to teach children to save money.

When I was 12 my public school teacher took her class
on a field trip to the local bank. We each opened a passbook
savings account... and periodically we could bring money
to school to add to our savings account. It was a good
introduction to the banking system.

 

[CCdaCE]

Opened a savings acct on saturday for my DD(8). She was proud...signed her name and everything.

Interest rate of less than 1 half of 1 percent. I could put it in a CD(it's under $500) and get 2.9%.

Now I remember why I hate banks.

Is there a Money Market offered? Usually these have higher rates, but sometimes a higher minimum...

-CC

 

[Orchidflower]

My mother helped me open my own savings account--in my own name (maybe she was on there too? Just too long ago to remember.)--when I was about 7 or 8. What a wonderful thing to teach kids to save.
I know I got so little money--much less than my peers--and I had a ceramic piggy bank I would take out on the weekend and count my quarters. I used my hard earned little pittance of an allowance to buy all the Xmas gifts and so forth for my parents, but what a great lesson for a child.
I fell down on this when I raised my own child, and I really regret it. Luckily or unluckily, he learned to save on his own and the hard way after losing some money at the beginning of his teens. But he learned.
Open a savings account for the child, and let them take care of their own passbook and do alot of their own accounting. This is such a great, great thing for self-esteem, responsibility, savings and all those other lessons.
Again, I SO regret falling down on this one parental task (saving) when I raised my child. Don't be like me...

 

[lindalou]

my son chose 6 month CD

My 10 year old son opened a 6 month CD about 1.5 year ago at Ascencia Bank. They have a $500 minimum and the current interest rate for 6 mo is 5.4% APR. It was a little difficult explaining the CD concept to him, and I had to agree to lend him funds if he decided to make a large purchase. I update him occasionally on its current worth, and it always brings a big smile (he's a miser...)

I changed 'borrow' to 'lend' - I use these interchangably - oops!

 

[joesxm3]

A woman I know had a brokerage account for her son. They would review investments and buy some stocks and funds. He would think he is buying 1 share if INTC but she would actually buy more without telling him.

He was smart and relatively young. He was really excited and I think he learned a lot by the process.