As a parent, it can be difficult to know when your child is ready for their first checking account. You should consider several factors before opening a new account in their name to ensure your child understands the impact of their financial decisions in a low-risk way. Here are four questions you may want to ask yourself before heading to the bank.
Teaching your children about finances is a great way to get your own financial health in shape as it gives you an opportunity to show them how money works and the consequences of having bad spending habits.
If you’re in debt, then showing your kid the journey and work it takes to become debt-free can have a ripple effect that helps them understand finances when they’re out in the world. Sit down together and use tools like a consolidation loan calculator to go over your financial situation and give them a chance to ask questions about what good choices they can make with their own money.
Everyone makes mistakes occasionally with their money, but children are especially susceptible to overdrawing from their checking accounts, so you’ll need to have a backup plan that prevents them from accruing overdraft fees. Consider linking your checking or savings account to theirs and set up automatic overdraft transfer to cover any hiccups. Setting up services like overdraft protection is an excellent way to both monitor your child’s spending and use mistakes as teaching moments to prevent them from happening again.
Before opening an account, be sure that it doesn’t have any limitations or balance requirements that could eat up your kid’s money. Most banks and credit unions offer no-fee checking accounts or even student-specific checking accounts that are tailored for younger customers who don’t have a lot of money or make many transactions.
The account you open for your kid should be easy to access in case of emergencies. Look for included features like free mobile banking apps and see how many no-fee ATMs are available in your area. Some banks offer ATM fee reimbursement so their customers can use any ATM worldwide, but look into when the fee reimbursement is deposited as it could overdraft the account. If the fee is only reimbursed once a month, that could mean your kid’s account stays in the negative or gets overdrawn further.
Bank accounts are a valuable and necessary tool for navigating the world, but you need first to teach your child to be careful with banking services to avoid getting trapped in a cycle of debt. Before you open a checking account with your kid, make sure you think about their short-term and long-term goals and how to prepare them for a financially healthy future.