Your Child’s First Checking Account

It may seem like just yesterday that you were dropping her off for her first day at school. Now you’re shopping around for her first checking account. How time flies.

But don’t take this moment lightly. Adolescence is a critical time for teaching children about money. They are beginning to earn some money of their own and starting to make their own choices about clothing, accessories, bicycles and expensive coffee. They are starting to gain awareness of the importance for saving for a longer-term goal, such as a car or college.

But they also need to be able to access money without you holding their hand at all times. For safety reasons, you don’t want them carrying around a lot of cash. The solution: Their own checking account, with a debit card and ATM access.

Minors, of course, cannot enter into legal contracts of their own. A parent or guardian must act as cosigner on any accounts they open at a credit union or other financial institution. That means you retain overall control. But you are also on the hook should your child go on a wild spending spree, and that’s a good motive for helping them learn to spend wisely and manage their account.

Banks and credit unions allow parents to maintain full control and access to accounts that are set up for their minors. Depending upon your financial institution’s policies, you can choose from these common parental controls:

• Separate account logins, so you can see all the transactions your child makes.
• Limits on ATM withdrawals.
• Optional overdraft protection.
• “Sweep” savings accounts – a system that looks at each transaction on the debit card purchase, rounds up to the nearest dollar and transfers it to a savings account that grows over time.
• Limits on debit card transactions.

As your child matures and displays an ability to responsibly spend and manage their account, you can relax some of these restrictions.

Tips:

Pay careful attention to the terms and conditions on the account. A $12 per month maintenance fee may not be a big deal to an adult with a full-time career. But it’s a big chunk of a child’s total monthly cash flow. Look for low or no monthly fees.

Also look for something that pays at least a little interest. Interest rates are very low as of this writing, but even a very low rate can still help you teach children the benefits of saving and compound interest.

Keep safety in mind. Your child will probably go to the bank many times alone, either on a bike or on foot. Try to find a branch in a decent neighborhood, with on-site security if possible and safe traffic patterns for bicyclists.

Expect your child to make bad decisions once in a while. But the lessons learned from those experiences will make lasting impressions on your child and hopefully create a responsible behavior pattern that will set them up for unlimited success later in life.