Financial skills: opening a bank account
I was surprised when I asked parents to tell me about life skills they wish their children knew about, and there was a resounding request for children to learn how to open a bank account.
Similarly, there was a great call for:
- How to budget and balance accounts
- How to write checks and pay bills
- And how to start saving for retirement
It seems that some of the things we take for granted, as a result, are lacking in what we teach children.
This article is the first article in the four-part series and will discuss the best and easiest way to start opening a bank account.
It sounds easy, but there are several questions that many people never think we will address in this article:
- Which bank?
- Checking or savings account?
- Are there minimum fees or balances?
- Should I get a debit card, too?
- Should my name be on my child’s account?
1. Choose a bank
When choosing a bank, there are a few criteria that you will want to consider:
- Number of branches
- Ease of access
The location should be convenient for your home, but it should also have enough branches so that in the event of an emergency, you can reach your bank.
I opened an account with Elevations Credit Union when I was attending CU Boulder. It was convenient and credit unions are really great for banking. However, after graduating and moving, there were no branches around me, which made things very awkward. I ended up opening an account with US Bank since they are in almost all the King Soopers, where I do my shopping.
This is especially important with children because you don’t want them to have to drive too long just to go to the bank.
Similarly, ease of access to the branch is important. I remember having an account at Norwest (now Wells Fargo) and getting in and out of the bank parking lot was terrible. I had several car accidents that almost got me out of the way and I was even afraid to go to the bank.
2. Checking or savings account
As you will learn in the future article on savings and budgeting, there must be an account that is used for saving and investing.
That means it is important to have BOTH a checking account and a savings account.
The reason a checking account is important is for children to learn to write checks and have a designated spending account in addition to a designated savings account.
Checking accounts are important for paying bills (either online or by mail) and will give children the opportunity to learn how to write checks. Even if the writing of checks is not as frequent as before, it is still important.
One day I was shopping and I realized that I forgot my wallet, that I had my credit cards and cash. I started to panic because I needed some food. Fortunately, I keep a couple of checks in the car and was able to save myself by writing a check … they are still useful!
3. Fees and minimum balances
Some banks charge fees for having an account and others do not. Obviously, get the one that doesn’t, as your kid shouldn’t have a huge account. Also, make sure there is no minimum balance or a very small minimum balance ($ 10 or less).
Just as important is how overdrafts are handled!
When I was in college, it never failed: my classmates (who hadn’t learned how to balance an account) routinely activated their overdraft protection and the high fees that came with it.
They would look at their balance online and it would show $ 10. Then they would check it again a few days later and it cost $ 30.
It was the magic growing bank account; and they never wondered where the extra money was coming from. Until the end of the month when they had over $ 200 in overdraft protection fees!
I would suggest NOT getting overdraft protection and instead making sure they can balance your account (which we will cover in a future article).
4. What about a debit card?
Here are my thoughts on kids who have debit cards: It makes it much, much more difficult to balance the bank account, and at the same time, it makes it much easier to overspend and get into trouble.
Are ATMs Convenient? Yes, but I have never used one in my entire life. Part of teaching children life skills is teaching them to be prepared. I keep an extra $ 10 in cash plus some checks in my car. I wouldn’t mind if it was stolen from me.
If your child is determined to get a debit card, wait at least six months after opening their account so they can learn “the old-fashioned” and understand how the debit card affects their account when they actually start using it.
5. Should I be on the account too?
I think it is a very good idea for you to be on your child’s first account so that you can monitor their expenses and make sure they do not cause a train accident.
It’s good to get statements so that you can use them as a learning experience to go over with your child and teach them how to properly dispose of them (in a shredder) so that they decrease the risk of identity theft.
Think of a time frame or benchmarks until you exit the account and let your child take responsibility for an individual account.
Opening a bank account is a great step into a new world for children and it should be a great experience. Guide your kids through the setup and look for learning opportunities along the way.