Bank Accounts For Minors | Opening Children’s Checking Accounts | Kids’ Bank Accounts
Bank Accounts For Minors | Opening Children’s Checking Accounts | Kids’ Bank Accounts
The idea behind opening bank accounts for children is that it’s never too early to start teaching them about money: how to earn it, how much to spend, and how much to save. Ideally, you get them to earn it through an allowance (emphasis on the earning; no allowance just for the sake of allowance), and then teach them rudimentary budgeting so they can figure out what happens once they get the money. This is where they start when they spend the money, which lays the foundation for them to understand the concept of saving. From that perspective, opening a bank account for your child makes sense and one can argue that it’s best to do it as early as possible.
While as adults, we have come to fully grasp the importance of basic financial skills such as budgeting, investing, and generally planning our financial future, most of us totally neglect teaching those very essential skills to our children. Some have suggested that since most people struggle with managing money, they subconsciously consider themselves ill-equipped to teach their kids about money. Well just look at it this way: by giving your child a strong foundation in money management, you’re preparing them to avoid a number of pitfalls in the first place, which will make things easier for them as they grow into adulthood.
Where and how to open your kid’s bank account
Considering the fact that we’re dealing with youngsters, it’s preferable to start off with a high interest savings account for kids, although most banks do offer both checking and savings accounts. When they grow older (into mid-teens), then they can “graduate” to checking accounts, which typically come with a linked debit card. Finding a great account is actually easier than you may think: banks compete quite fiercely for new savings accounts. Getting a new customer at such an early age increases the chances of them becoming lifelong customers. Most of the best bank accounts for children will offer pretty good interest rates and possibly other benefits which are considered promotional expenditures to lock in those new customers.
After deciding which type of account you’re opening, go to the bank with your child. At this stage, your child should know that a bank is a place you put your money until you need it. You should also have had a conversation about interest: what the bank pays you for the privilege of holding your money. Let the bank associate talk to your child: this way he/she will feel a lot more involved in the process. Make sure that the account is in your child’s name and all the mail is addressed to him/her. Your child will feel like a grownup when those statements start coming in the mail every month, just like mom and dad’s!
Make sure you pick a bank that doesn’t charge monthly maintenance fees or have minimum balance requirements; also make sure there is no limit on the number of small deposits. Be especially watchful of the definition of inactive accounts and the associated fees. Why? because of the nature of the account you’re opening. Ideally, your kid will be making deposits when they get their allowance (to reinforce the concept of saving before spending), but in reality the account might go untouched for extended periods of time. You don’t want your child to get unwelcome surprises when they open up their statements.
Speaking of statements, when they arrive, go through them together and explain the interest and any other numbers that may appear upon it. It will be much easier to explain the power of compounding if the account is earning interest.
The first bank you check will likely be your own bank: less paperwork because your own account is already there. Now in case their offerings don’t really match what you’re looking for, then you should scope out the competition, including the credit unions and online banks. Depending on the age of your child, your requirements for the accounts will differ, so consider how your child will use the account when making your selection.
Once you’re comfortable with the account selection (and your kid is, too), it’s time to read and sign the paperwork. Of course, your child will have to sign as well. Your child will then be assigned their very own account number so they can make the first deposit. He/she will also receive a register to keep track of deposits and withdrawals, which should be no problem if you’ve previously done your homework and taught them everything they need to know about that.
Enabling your child to open a bank account is a great first step to teaching them about money, including budgeting and basic investing (that’s why an interest-bearing savings account matters). After they make that initial deposit, you now have a good starting point to sit them down and help them draft their own budget, including savings. It’s a very important skill to build and it will serve them well throughout their lives to help them develop a very strong financial literacy.