I was thinking about how I started learning to save money when I was a kid. At some point, my parents opened a savings account in my name, and I had a nice little bank book. No ATMs back then-- you had to bring your bank book to the teller, who would record your transactions in it. When I got money as a gift, or from my first babysitting jobs, some of it went into that savings account.
Wednesday, November 04, 2015
I understood how savings accounts worked: you put money in the bank and the bank paid you interest. I was a kid in the late 1970s/ early 1980s when interest rates were high-- as far as I can remember, my savings account earned about 8%, and knowing that I could be paid 8 cents a year for every dollar in my account was actually meaningful to me-- I was earning money just for letting it sit there!
8% savings account interest seems outlandish today, and I wondered if my memory was correct. I think I am right-- the prime rate back then was between 10% and 21.5%! Today it is only 3.25%, where it has been since 2008. The average interest rate on a savings account today is only a fraction of a percentage point. You might see a teaser rate of 1% or so, touted as if it's the best thing ever, but it will only be for a limited time, and only for opening a new account.
So how do you get a kid to see the value of saving if you have to tell them that they will only get a fraction of a penny for every dollar they put away? You could try to teach them about investing in the stock market instead, and I do believe there is value in that, but it is a lot more complicated, and involves so much more risk.
I would love to hear from readers with kids abut how they've handled this with their own families!