5 Essential Accounts To Open for Your Children

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Teaching children about money management from an early age is important. Instructing your little ones about the basics of banking, for example, goes a long way. One effective way to do this is by opening accounts for them, which can not only help establish savings habits but also introduce them to the world of finance. Here are five essential accounts you should consider opening for your children.

1. Savings Account: The Foundation of Financial Learning

A savings account is the most basic and essential account you can open for your child. It serves as a great tool to teach them about the concept of saving money. Many banks offer special savings accounts for children with low fees and attractive interest rates.

These accounts often come with online banking options, allowing children to watch their savings grow, which can be a great motivational tool. Parents can regularly deposit a portion of the child’s allowance or gift money into this account to help build their savings.

2. Education Savings Account: Investing in Your Child’s Future

An Education Savings Account (ESA) or a 529 Plan is crucial for planning your child’s higher education. These accounts allow you to save and invest money for your child’s college tuition and related expenses. The funds in these accounts grow tax-free, and withdrawals for educational expenses are also exempt from taxes. Starting this account early can significantly ease the financial burden of higher education.

3. Checking Account: Managing Everyday Finances

As your child grows older, a checking account becomes a valuable tool for teaching them about daily money management. This type of account is ideal for teenagers who might start earning through part-time jobs. They can learn how to deposit their earnings, manage a checkbook, and responsibly use a debit card. Some banks offer student checking accounts with no minimum balance requirements and no monthly fees, making them perfect for young individuals.

4. Custodial Investment Account: Introduction to Investing

Opening a custodial investment account for your child introduces them to the world of investing. This account, managed by a parent or guardian until the child reaches adulthood, can invest in stocks, bonds, and mutual funds.

This is a great way to teach children about the stock market, the importance of long-term investing, and the power of compound interest. These accounts can also be used to save for long-term goals like buying a car or funding a start-up business in their young adulthood.

5. Retirement Account: Planning for the Long Term

It might seem premature, but opening a retirement account like a Roth IRA for a working teenager can be incredibly beneficial. If your child has earned income from a part-time job, they are eligible to contribute to a Roth IRA. Contributions to this account are made with after-tax dollars, and the earnings grow tax-free. This early start in retirement savings can teach your child about the importance of long-term financial planning and the benefits of starting early.

Bottom Line

Opening these accounts for your children can provide them with a solid foundation in financial literacy and prepare them for a secure financial future. It’s about more than just saving money; it’s about imparting life skills that will serve them throughout their lives. By starting early and choosing the right accounts, you can set your child up for financial success and independence.

Editor's note: This article was produced via automated technology and then fine-tuned and verified for accuracy by a member of GOBankingRates' editorial team.

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