Teaching Children About Money: How to Explain a CD to Your Child

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December 2014

When you're teaching children about money, they need time to grasp the concept of where money comes from and how it's used to purchase things, not to mention how it can be used to make more money. For those advanced lessons, like teaching them how CDs work, let your parental instincts guide you into knowing when the time is right. You can teach your children about CDs well before they ever open an account.

Play "Time to Save!"
All you'll need to play is a small sum of money in a few different denominations (for your "CD") and a timer. Sit down with your child an hour or two before going on a shopping trip (perhaps to the grocery store) and count out the money for your "CD."

Now, explain to your child that this "CD" is his or hers, but it will stay with you. Next, explain that you're going to set the timer, and when it goes off, you'll add some money (interest) to the sum. But, the child will have a choice to make at that point.

“Beep,” Time to Choose!
You might tell your child, "When we get to the store and the timer goes off, you have to decide whether to let me add some money, or you can just take the money and spend it. If you decide to spend it, I will take 50 cents out of the sum, so you'll have less to spend." That 50 cents, or another amount you choose, represents an "early withdrawal penalty" on the "CD.” Finally, add that if the child makes it to the store and back without spending the money, he or she gets to keep all of it and perhaps an additional reward.

Tips: Set the timer according to the child's age. The younger he or she is, the more often the timer should go off. If the child is a bit older, say, between nine and 12, you can complicate the exercise by increasing the time intervals as the game continues to simulate rolling over the "CD" into longer terms. Do a few practice runs at home to ensure your child understands the rules. After you play the game, have a conversation about how CDs work; you’ll be pleased to see how the hands-on experience can enrich your child’s understanding.

Give it Time. Be Flexible. Know Yourself (and Your Kids).
CDs can be a complicated subject for adults, so if your child doesn't catch on in the first attempt at "Time to Save," don't sweat it. Remember, too, that the game doesn't have to be rigidly defined, and you can change the rules to suit your own family's values and the child's personality.

Take a look at the various CD products offered by Ally Bank. With great customer service and rates consistently among the most competitive available as published by RateCatcher, it's always a good "time to save" with Ally Bank. Learn more by visiting Allybank.com or call live, 24/7 customer care at 877-247-ALLY (2559) today.

Ally Bank, Member FDIC

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