For many teens, learning about algebra and geometry is more common then learning to manage one’s personal finances. Perhaps it’s an unfortunate oversight in our education system, or maybe it’s just not a priority when there are so many other subjects to be taught in school.
Whatever the reason, personal finance experts say one of the best ways for parents to start their child on the road toward financial responsibility is to open a teen checking account.
“Most banks and credit unions allow you to open an account when the child is 13,” says Carissa Uhlman, of Inceptia, a nonprofit that offers free, online money management courses for teenagers. “However that may not make the most sense in terms of where your child is at. It often makes more sense to wait until your child gets their first job or starts driving because that’s when they’ll start to have some kind of bills, or will need money for gas. And they’ll have the ability to get around, so they’ll be spending more money — to go to the movies, or at the mall.”
All of this spending and newfound mobility brings with it an educational opportunity for parents, in the form of instilling good financial habits in a child. Yet even at home, managing personal finances is not necessarily a popular topic.
According to a report from Junior Achievement-Rocky Mountain, an organization dedicated to preparing young people to succeed in a global economy, 84% of teens report looking to their parents for information on how to manage money, but 34% of parents say their family’s approach to such matters is to not discuss finances with the children and “let kids be kids.”
“A lot of parents just think children understand how personal finances and checking accounts work because they’ve grown up watching their parents. But you’d be surprised. Teenagers often don’t understand that swiping a debit card is tied to money in an account,” says Uhlman. “Parents think their teens understand this stuff intrinsically because they watch their parents, but that’s just not the case.”
Here are some more tips from the experts when it comes to opening a teen checking account.
Keep in Mind That This Will Be a Joint Account
Because a teenager is a minor, an adult will need to be involved in opening the checking account and should be aware that it will be a joint account. In other words, the account will be shared and the adult involved will also bear the financial burden of any overcharges or fees incurred.
But the joint nature of the account also presents an opportunity for the parent to guide the teen financially while also remaining in control of what transpires, says Lori Askins, of New York-based BR Finance Solutions.
“The parent can set limits on the account,” says Askins. “Depending on where you bank, you can set withdrawal limits and transaction limits, and the parents can receive alerts through text messages and emails when a balance is low. There are constant updates, so that the parent knows everything that’s going on.”
Ask the Right Questions
There’s a variety of questions the adult should ask a bank before opening a teen checking account, experts say. For instance, it’s important to know whether an account comes with spending limits — and if not, whether limits can be assigned, such as putting a cap on how much the teen can withdraw from ATMs in a single day.
Another important question to ask is whether the adult is required to have an account with the bank. If you’re not a customer yourself, will any fees be incurred should you decide to close the teen’s account?
Finally, be sure to ask the bank what happens when your teenager reaches 18. In most cases, the checking account is converted to a standard account, which may bring mean new fees and requirements.
Look for a Technology Forward Bank
It’s a rare teenager that isn’t tied to a smartphone these days. Given the prevalence of technology in your child’s life, it only makes sense to choose a bank that recognizes that fact.
“Find a bank and an account that offers the ability to do a lot of things online,” stresses Uhlman. “Does the bank have a good app? Does it allow your teen to monitor their account online? For a lot of teens, that’s pretty much the way they’ll bank for life, so you’re likely to find your teen will be more engaged if they have those technology options.”
Choose a Bank With a Strong ATM Presence in Your Area
Finding an bank with plenty of nearby ATMs will save both you and your teen money in unnecessary out-of-network ATM fees. “Selecting a bank that has a good number of ATMs in your area will prevent your teen from being tempted to go out of network and be hit with those fees,” says Uhlman. Failing that, some online banks will reimburse you for a certain number of out-of-network ATM fees per month.
Finding the Right Bank For You and Your Teen
How will you ultimately know which bank and bank account is the best choice? That comes down to all of the advice already discussed, as well as a few additional considerations.
Askins says some parents prefer to use a bank they already have an account with, simply for ease and accessibility. Alternatively, some parents might want to choose a bank that offers accounts specifically tailored to teenagers.
For example, Capital One offers a ‘Money’ account, which was created with teens in mind. The account has no hidden fees or minimums and allows your teenager to earn interest. “This is great as your teenager is still in the learning process and you wouldn’t want to incur a monthly fee for not meeting a minimum balance every month,” says Askins.
Capital One provides a MasterCard debit card that can be used at numerous ATMs without fees, as well at stores, continues Askins. In addition, Capital One offers text alerts and a mobile app to track spending.
US Bank also offers a student account with no monthly maintenance fees and full access to online and mobile banking. And USAA’s Youth Spending account includes a variety of parental controls such as specifying whether a child can make transfers and deposits, setting spending limits that help a child learn about making money last, and creating account alerts that are triggered when limits are exceeded.
“This is the prime opportunity for you to teach your children basic money management, before they’re out on their own and make disastrous mistakes,” concludes Uhlman. “Allowing them to open an account as a teen, gives you an opportunity to monitor them and have discussions about money. And it allows them to make some small mistakes and rebound.”