Most parents keep their finances hidden from their children. You don’t want your kids to worry about mortgage payments or that dentist bill that’s causing you stress. While your intentions are good, you’re preventing your child from learning valuable lessons about money.
Instead, create an open relationship between your kids and household finances. One of the best ways to introduce your child to money is to open their first bank account.
“Why should my child have a bank account?”
Finically literacy is an important part of life. As a parent, you should prepare your child to deal with their personal finances in an honest, objective manner. That means you should expose them to financial concepts (like banks, accounts, and balances) as early as possible.
Early interactions with money can also banish stress that’s commonly associated with finance. According to the 2015 Money Matters on Campus survey education technology firms EverFi and Higher One, 36% of college students reported that managing bank accounts and potential overdrafts are leading causes of stress. 12% indicated they never checked their balances because they are too nervous. Those statistics were alarming when I first saw them!
“How old should my child be?”
For the sake of safety, it’s smart to move a child’s money into a bank account early. Piggy banks are fun, but once it starts to fill, put that money somewhere it can sit safely and earn a bit of interest.
You can open a separate savings account in your own name at any time. Many parents do this when their children are first born to stash birthday and holiday gift money.
You can also open the account in your child’s name, but make yourself a joint owner. To put your child’s name on the account, you’ll need to bring your social security card. Either of these options put the account under your online banking profile, so you can easily move money into the account to build savings.
By age eleven or twelve, your child should definitely have their own account that they can access under your supervision. Do not allow them to make purchases without your approval, but show them the balance any time they ask.
For the youngest savers, we love passbook savings accounts because they are visual and tangible. Your child can see the money in and the money out. Even a 4-year-old will get excited about going to the bank and making a deposit from their piggy bank!
“When should my child get involved?”
Up until age seven or eight, most children don’t understand the concept of money well. They know what money is and how it’s used, but not where it comes from or how it drives economies. You can educate them by getting them involved.
Demonstrate how to perform basic banking functions, like using an ATM, making a deposit, or transferring money online. Prioritize lessons that teach about saving rather than spending. However, give them a respect for money by letting them spend some of it so they can experience the loss.
At a certain age, you’ll have to give your child full access to their own money. Most parents do this in the mid-teenage years, say 14 to 16. At this point, you should have laid the foundation for smart money habits and inspired them to save their money for larger purchases, like a car or college tuition.
“What type of bank account is the best?”
Above all things, you need a bank account that minimizes fees. Start with a traditional savings account, as they typically don’t have any fees. Your child likely won’t have a lot of money to deposit, so you don’t want it eaten up in fees. Plus, savings accounts earn modest interest, which is a valuable lesson in letting money grow.
Older kids may need a checking account with a debit card associated with it for making purchases at stores and fuel stations. As a parent, you should ensure your name is on the account so you can monitor their spending. Again, choose an account with low or no fees. Making sure your child understands that debit cards are NOT credit cards with unlimited funds – hard lessons happen when overdraft fees begin to appear. Teach them how to login to their account online and monitor their spending – we offer budgeting tools and more to keep them on track!
We love when parents bring their children in to open their first account – be it at age 2 or age 12, it’s an exciting time for them! By starting early, you will be teaching them a valuable lesson they will happy they learned.
Washington Branch Supervisor