Kids Learn to Save, Repay Loans

On Oct. 24, the sixth-grade class at West Middle School in Leavenworth, Kan., will be given a bank loan of $30. The loan document, which must be signed by all the children, will come from the nearby Army National Bank. With the money "the children must buy ingredients to make cookies," says Laura Swisshelm, a spokeswoman for the bank. The children will have to sell their cookies and pay back the loan - the original $30, plus a small interest charge of 12 cents or so.

"The children always make money on the sale. And each child will then get a personalized certificate from the bank for participating in the program," says Ms. Swisshelm. The goal, she says, is for children to learn about bank loans, how to be entrepreneurs, and how to save (with the money they earn).

Welcome to the flip side of parental responsibility for finances: Just as parents must plan for nurturing and caring for their children, so too must children learn to cut unnecessary expenses, save for the future, and be responsible participants in their family's overall economic setting.

Throughout the US, a number of banks, savings associations, and credit unions now offer savings plans especially designed for young children. "We have a network of some 5,000 banks participating in savings programs or consumer-education programs for young people," says Patricia Boerger, a spokeswoman for the American Bankers Association, in Washington.

Key Bank, based in Cleveland, allows young children to earn model dinosaurs for joining a program called "Dinosavers." An account can be opened for a minimum of $10, below the more standard $50 minimum for adults, a bank spokesman says. Other banks with unusual programs include Chase Manhattan and Republic Bank in New York, and Parkway Bancorp, in Elk Grove Village, Ill., says Ms. Boerger. In addition, she notes, many banks now offer consumer-education courses held in conjunction with local school districts, or adult evening classes.

One US bank specializes only in children: The Young Americans Bank, in Denver, has more than 17,000 account-holders, none of whom (except for a few bank employees) is over age 21. The minimum amount to open a savings account is $10. The bank also makes loans, such as for cars or computers. Its phone number is (303) 321-2265.

In addition, a number of mutual fund companies, including T. Rowe Price (800-638-5660) and Twentieth Century Group (800-345-2021) will reduce their minimum entry fees for young people. The young people, however, must make regular additions until the usual minimum level is reached.

In addition, some mutual-funds are specifically marketed to younger savers or parents creating a custodial account for their children. The Stein Roe Young Investor Fund (800-324-2550) is a stock fund aiming for high returns over time. But if your investing horizon is short - 10 years or less - some experts prefer bonds over stocks for safety.