I often have a hard time explaining to my kids why they should put some of their money in the bank.
My 9-year-old daughter -- the crafty genius of the family, really -- had me at one point when she asked how much she'd be paid for trusting the bank with her cash. The honest answer is that she'd get paid basically nothing.
That naturally led to her asking what the point was in putting her money in the bank, making it harder to get to, especially when she isn't already a spendthrift.
My answer was essentially what it had to be: because putting money away for later is a good habit. Rates will rise at some point and she'll be paid more. For now, let's just build the habit, I argued.
"But honey, you'll earn a whole 9¢ in interest!"
Let's be clear that I'm not talking about college savings in this article. My wife and I sock away some money in 529 accounts for each of our kids whenever we can. Instead, I'm talking about a savings account my daughter owns: a mechanism designed to help her save for stuff she'd like to have.
Therein lies the problem. Record-low interest rates make for laughable returns for the average savings account: The very best savings deal published by Bankrate (RATE) offered just 1.05% for balances above $25,000 as of this writing, and just 0.90% for other accounts.
Many big-name banks offer 0.10% or even less. Among the better-known names, American Express (AXP) and Discover Financial (DFS) offer accounts that pay 0.85% and 0.80%, respectively, Bankrate reports.
Banks aren't doing me -- or any parent -- a favor by offering my kids essentially nothing for their cash. Under the best of circumstances, my daughter's $100 would earn her just $0.09 per year -- nowhere near enough to buy anything matters to her or any kid.
But it's worse than that. Bankrate shows that most mortgages now cost about 3% annualized, which means the vast majority of institutions that pay well below 1% on deposits earn 3% or more on the funds they've borrowed to lend to others.
What's the Point?
Banks have a right to make money, of course, so that delta shouldn't surprise me or anyone else. Yet I have a hard time arguing that saving is a wonderful thing to do when I know from experience that there are plenty of other ways to earn more.
It wasn't always this way.
My parents opened a passbook savings account for me when I wasn't much older than my daughter is now. Double-digit interest rates were the norm then, transforming every $100 or so I stored away from income earned as a newspaper carrier into $10 or more for every year that I kept the cash squirreled away.
My problem wasn't a lack of savings options. My problem was that, in spite of the remarkable rates I was being offered, I too often chose to spend on fast food, movies, and comic books. Only one of those (i.e., the comics) still has any meaning or value to me.
I Fear for Her Future
That's why it matters to me that my daughter comes to appreciate savings as a habit now, while she's still young, in order to avoid growing up as a spendthrift who struggles with debt as I have.
Paranoia, you say? I suppose that comes with being a parent. But if I'm right that long-held safety nets are in the process of failing, my kids will need to cultivate the savings habit as a means of survival. And I've got to do all I can to help.
My next article for DailyFinance will explore some ideas for helping parents build the savings habit in their kids. Care to contribute? Leave a comment below to share your own struggles, suggestions, and successes.
Motley Fool contributor Tim Beyers didn't own shares in any of the companies mentioned in this article at the time of publication. The Motley Fool has created a bear call spread position in American Express. Motley Fool newsletter services have recommended writing a covered strangle position in American Express.