Financial literacy beginning with children’s savings accounts

One of the great challenges for parents, is to have their children develop an appreciation for the value of money – and using children’s savings accounts effectively, goes a long way in meeting this challenge.

bank account passbook with calculator under sign 'teaching kids about money: opening a savings account'What are children’s savings accounts: and where do you access them?

‘Children’s Savings accounts’ are ‘high(er) interest’ paying bank accounts that operate in the same manner as a ‘regular’ bank account. They usually are low- or no-fee accounts and may offer bonus interest rates subject to minimum deposits or no-monthly withdrawals.

As with regular savings accounts there are no prescribed payment amounts and parents may deposit money regularly or on an ‘ad hoc’ basis. This is perhaps the easiest option – but also the least tax effective; and also most likely to deliver the poorest ‘returns’ outcome over the long term.

Savings accounts can be either held in the name of the parent as trustee for the child (formal or informal trust), or in the name of the non-working or lower income earning parent or guardian.

The larger banks usually have these accounts on offer – and sometimes promote them with ‘special conditions’. You should enquire with local Banks or other deposit-taking institutions, to compare offers. Details about the various offerings on children’s savings accounts are readily available from the websites of the institutions offering them.

Advantages

Simplicity

Security (from market fluctuation risks)

Flexibility (depending on the account: irregular deposits/ withdrawals may be possible)

Can also target the child’s effective tax free threshold on passive income ($420) before the harsh tax rates for minors start to apply

Disadvantages

Low expected return compared to alternatives, especially over the long term

Interest income is fully assessable

Penalty tax rates may apply if the interest income is assessable to the child and above $1,667 (this figure takes into account the low income tax offset)

The interest may be taxable in a parent’s name – depending on how the account is held; and/ or how funds are utilised.

Financial literacy for your family

Children’s savings accounts are an ideal way to introduce your family to the benefits of saving, of understanding the value of money; and of investing. Our website article “Wealth accumulation incrementally“, deals with the concept of Dollar Cost Averaging in the context of a savings plan to initiate an investment plan.

If you would like to discuss a strategy that would work best for your family and financial circumstances, arrange an appointment with one of our experienced advisers: call our office on 07-3421 3456, or complete the contact us form on our website and we will attend to your enquiry promptly.