Every parent must decide their philosophy on raising kids.
How much discipline should you enforce? Should you make your child work at a certain age? When should you teach them about money, or should you avoid making them stress about those sorts of things until later?
Money expert Clark Howard worked for a furniture company at a very early age, required his children to get a job at a certain age and has not been shy teaching his kids about money.
Whatever you deem appropriate as a parent, one thing’s for sure: The earlier in life someone learns about money and develops good habits, the better chance they’ll have to build wealth and achieve financial independence.
One parent wants to teach his 15-year-old daughter more about finances after she received some birthday money. Is a bank account designed for teenagers the best way to do that?
Bank Account vs. Investing: Where Should a Teenager Put $2,000?
Should I open a bank account for my teenage daughter to teach her about money?
That’s what a Clark listener recently asked.
Asked Andres in Texas: “My daughter and our family just celebrated her quinceañera. She received almost $2,000 in cash.
“I was thinking of using a program through our bank (Bank of America) that was designed for teenagers opening a checking account with a debit card to teach her how to use her money slowly and hopefully save it. I also believe that we will have full control of her checking account until she’s an adult.
“What are your thoughts on checking accounts and debit cards designed for teenagers through large banks?”
Andres teaching his daughter about the value of money, and how banks work, has value. And Clark does think certain financial institutions cater to teenagers better than others.
When it comes to savings specifically, Bank of America offers a shockingly low 0.01% interest. There are savings accounts that offer 5%+ interest right now.
However, Clark thinks that big-picture, there’s a more effective way to teach Andres’ daughter about banking while also helping her understand an even more powerful long-term skill: investing.
“I’m going to shock you. I would treat that money as investment money, not banking money,” Clark says. “And I would take your 15-year-old daughter to a Fidelity Investments branch and open one of the restricted teenage accounts they have.
“Investing money for a teenager, having a teenager learn how to invest, is far, far more valuable for her lifetime than going to open a traditional bank account. So if you don’t mind, go with her to a Fidelity Investments branch.”
The Fidelity program can introduce her to saving, investing and managing money. She’ll get the equivalent of a checking account, a debit card and still be able to invest. Plus, Fidelity won’t charge her any fees.
Investing vs. Saving: Why It Matters Over Decades
Clark says teaching a young person about investing is a bigger win as a long-term habit than teaching about savings accounts.
However, there’s a practical element to that decision as well.
Let’s say that Andres puts $2,000 in one of the best high-yield savings accounts. She earns 5% interest for three years until she turns 18 and doesn’t spend a dollar. The account balance will be $2,315.25.
However, if Andres invests the money in a total stock market index fund, the amount of money his daughter will have when she’s 65 years old is mind-blowing. Assuming an 8% return for 50 years, that $2,000 will turn into $93,803.23.
So the difference between those two options could be as much as $90,000. That’s a choice with bigger consequences than it seems on the surface.
Over five decades, compound interest is such a force that it becomes COMPOUND INTEREST in all caps.
Final Thoughts
Fidelity is Clark’s favorite financial company for teenagers to learn about personal finance. He’d also prioritize teaching about investing even over saving and banking.
