CDs can teach kids a difficult lesson

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I was not quite a teenager when my parents had me open my first certificate of deposit.

It turned out to be an important lesson for me on delayed gratification.

I later used some of that money for a backpacking trip through Europe during my college years. And I was grateful to my parents for the lesson.

The idea of delayed gratification, of waiting for a later reward instead of enjoying something immediately, is a difficult lesson, particularly for children.

Indeed, earlier this year, Sesame Street’s Cookie Monster — known for his weakness for cookies — became the spokesman for self control with a new music video (sung as a parody to Icona Pop’s “I Love It”) called “Me Want It, But Me Wait.”

Bankrate has written before about how delayed gratification is one of the top money lessons children should master.

A CD could be one way for parents to teach children that skill, especially since most CDs are structured so that you can’t take money out of them early without incurring a penalty. In addition, how CD rates play a part in the profit that one realizes is also an important lesson.

“Using a CD to teach children personal finance skills is a win-win situation,” Ally Bank said in a news release last year. “You spend quality time together now and help them make smarter financial decisions in the future.”

Here are some other tips Ally Bank had for helping kids learn about saving:

  • Attending financial classes for kids. Many financial organizations and libraries hold classes or workshops for children to teach them smart ways to handle their money that are led by trained staff who know how to make the subject fun for young savers.
  • Giving your child a “commission” instead of an allowance. You can help your children gain a better sense of what money is worth when they have to work for it instead of just giving it to them. Create a chart with age-appropriate jobs and assign each one a value, then promptly pay when a job is complete. This also builds a sense of accomplishment and puts the child in charge of his or her own personal economy.
  • Set savings goals. Saving money always has more meaning when you can see some kind of reward along the way. Saving up for a special toy or some other special treat further solidifies important ideas when teaching kids about money.
  • Matching their savings efforts. By adding your money to what the child saves, you create a “home version” of the 401(k) and show him or her how valuable their participation is. More importantly, you demonstrate just how proud you are of your child’s efforts to save for the future.

Parents, have you ever considered getting your child to open a CD? Why or why not? Do you think your child understands them as an investment, especially the role that CD rates play?

Follow me on twitter: @allisonsross.