Teaching your kids about finance is a great way to ensure that they will head into their young adulthood with a basic understanding of money. Sometimes, it’s simply important for them to understand that buying things has an impact. It sounds simple, but for many children, they simply ask for something and get it. There is no concept of what it costs. So, how do you instill that understanding at a young age? One obvious answer is to get them a bank account of their very own.
But what is the right age to do that, and how can you make sure that they are using it responsibly? Keep reading to find out.
What’s the right age?
In the end, the right age for when your child should get a bank account is up to you, the parent. While banks typically limit checking accounts to teenagers, savings accounts for your child’s college or future career can be started at any time. Even with very small payments, interest can help savings accounts grow to healthy sizes over the next two to three decades.
But we aren’t here to talk about savings account. We’re here to talk about your child learning about money first-hand. The best way to do that is to open a checking account with them. Think about opening a checking account with your child as soon as they seem ready to learn how to use on. All children learn and absorb information at their own pace. The youngest age that people can typically open accounts is 13, as long as a parent or guardian is present. Once your child turns 18, most banks will typically convert the student account into a standard checking account. Hopefully, within those five years, your child has learned what owning a bank account has to offer.
What will your child learn?
Before you open bank account with your child, it is important for you to know and share what you want them to learn from the experience. In a recent survey done by the OECD, American students ranked below average in a pool of 72 countries when it came to knowledge of personal finance. That means that students often miss out on that kind of education offered by parents, but you can curb that trend. A bank account can teach youngsters everything from what it’s like to use and protect a debit card, how to set a budget, how to save, and more.
Using a bank account provides your child with practical knowledge through experience. Experience is often a more impactful teacher than any kind of classroom instruction or online video. When money is involved, the stakes for your child immediately become clear and relevant. The earlier a child can start using a checking account, the earlier he or she will learn about keeping your balance up to avoid overdraft fees, bouncing checks, drained balances, and all the negatives that can come in the financial world. Giving you kid an opportunity to make mistakes and learn from them while knowing that ultimately, they have a huge security blanket (you) can go a very long in way in preparing them for when that security blanket no longer exists.
How can you monitor your child’s bank account?
This is a great question and it shows that you are in the right place to get your child a bank account. You can’t just give them access to money and expect them to be wholly responsible with it. After all, they are teenagers.
You’re going to want to be able to see how much they’re spending, and what they’re spending money on. Fortunately for you, online banking makes it easier than ever for you to manage money at any place in time. You can use mobile apps, or the bank’s website to keep an eye on your kid’s account balance and transaction history. With student accounts, parents are often known to set up alerts in case of overspending, that way you can stay updated on any purchases your kid is making.
On top of that, as co-owners of the account, you can also expect to received paper or electronic statements every month.
Are there other options for junior bank accounts?
If you are interested in other options other than opening a bank account for your child, there are definitely things out there to consider. Prepaid debit cards is a good way to teach your child how to not overspend and not rely on magical thinking when it comes to credit card use. These cards work much like gift cards, your child will be able to use them for what they want, but unlike debit cards there is not overdraft fee, and unlike credit cards there is no risk of spending outside your means and dealing with interest fees.
By replacing a cash allowance with regular transfers into the prepaid account, you can introduce your child to the concept of making purchases with an electronic account. Prepaid card accounts also allow you to monitor what your child is buying and how much money they are spending.
Both options are a great way to start your child’s education in the world of finances. The important thing to remember is that the sooner you get it started, the sooner they will have some financial literacy. It can pay huge dividends as they grow up and begin managing money of their very own.