Banking is often viewed as an intricate world reserved for adults, but introducing children and teens to basic financial concepts is a crucial part of preparing them for future independence. While it might seem like a daunting task, you don’t have to be a finance expert to talk about money with your kids. In fact, understanding common banking terms is something every parent can grasp and explain with a little guidance. This knowledge helps build their confidence and equips them with the skills to make informed decisions about money as they grow older.
Understanding banking terms isn’t just for adults. Research shows that kids and teens frequently have questions about banking, and their curiosity can often spark a deeper conversation about finances. The way we, as parents or guardians, approach these discussions sets the tone for how our children will view money in the future. If you feel a little uncertain about certain financial terms, don’t be ashamed; many adults face the same challenge. A 2019 Statistics Canada survey revealed that nearly 44% of Canadian adults sought out resources to better understand their finances. You’re not alone in this journey.
Before diving into specific terms, it’s important to set a positive tone around money. Be honest with your children about any gaps in your own financial knowledge. This creates a learning opportunity for both you and them. Kids will feel more comfortable asking questions, and it fosters an environment where everyone can learn together.
Here’s a breakdown of common banking terms simplified for kids, so you can confidently explain them and start building their financial literacy.
An account holder is the person who owns a bank account. This individual has the ability to manage the account by making deposits, withdrawals, and changes to the account. For a child, explaining that an account holder is like the “boss” of their own money can be a good way to make this concept relatable.
Annual Percentage Rate (APR) is the cost of borrowing money expressed as a percentage. It includes not just the interest charged on loans, but also any additional fees. For kids, you could explain APR as the “extra cost” of borrowing money, and how it adds up over time.
A familiar term that most people have used is the Automated Teller Machine (ATM). The ATM is a machine that allows you to access your bank account, withdraw cash, or make deposits with a card and a personal identification number (PIN). Kids often associate ATMs with getting money, making it a simple yet essential concept for them to understand.
Automatic bill payment is a feature that allows you to set up regular payments for bills, like phone bills or subscriptions, so that they’re paid automatically. It’s an excellent example to show kids the convenience of managing recurring expenses without having to remember them every month.
A bank statement is a report that shows all the transactions that have happened in your account over a given period, typically a month. Explaining this to kids can help them understand how to track their spending and savings, teaching them the importance of budgeting and keeping an eye on their finances.
A bank draft is a guarantee from the bank that a specific amount of money is available in the account to cover a purchase. For bigger purchases, such as buying a car, a bank draft provides extra assurance to the seller that the funds are available.
A certified cheque works similarly, but the bank verifies that the money is available in the account before issuing the cheque. It’s a secure way to transfer larger amounts of money and ensures that the cheque won’t bounce.
The chequing account is where most people keep their money for day-to-day use, like paying bills or receiving paychecks. Kids can think of it as a “spending account” that allows them to manage money they regularly use.
One of the most important financial concepts for kids to understand is their credit score. This score reflects how reliably someone has managed their credit, including how they’ve paid back loans and bills. Explaining the idea of a credit score to kids can teach them the value of being responsible with money and making timely payments.
A debit card is another key term for kids. This card is linked to their bank account and allows them to spend money directly from their account, but only if the money is available. It’s an excellent starting point to talk about the difference between debit and credit cards, and how they should always make sure they have enough money before spending.
Understanding the line of credit helps kids grasp the idea of borrowing money. A line of credit is essentially a loan with a limit, and once you borrow from it, you must pay it back with interest. This is a great concept to explain in terms of borrowing for things like emergencies or large purchases, but it’s crucial to show kids the importance of paying back what’s borrowed.
Loan is another term that comes up frequently in banking. Explaining loans to kids helps them understand how borrowing works: you borrow money now and pay it back later with interest. Whether it’s for buying a car, going to college, or purchasing a home, loans play a big role in adult life.
When it comes to understanding overdraft, you can tell kids that this happens when there isn’t enough money in the account to cover a purchase, and the bank allows you to borrow the difference. However, it’s important to stress that overdraft is an option, but it comes with fees and interest that should be avoided whenever possible.
The prime rate is another term worth explaining. This is the interest rate banks charge their most reliable customers. When banks lend money to people, they often base the rates they charge on the prime rate, so it’s helpful to understand how it impacts loan repayments.
By taking the time to explain these banking terms and their meanings, you’re setting your kids up for a successful financial future. Whether they’re managing their own money in the future or simply learning how to be financially responsible, these terms are building blocks that will help them navigate the world of banking with ease.
