In a digital world that's increasingly moving away from checks and interest-bearing, no-fee bank accounts, walking into the local bank to sign up your youngster may seem like more of an anachronism than a no-brainer rite of passage. But a bank account can encourage good savings habits and give you a chance to talk about money with your son or daughter.
Don't underestimate the power of this. Given that 36% of Americans don't have a dime in retirement savings, it's not a bad idea to start talking about the importance of this habit early on. And a recent T. Rowe Price survey found that 63% of kids whose families talk frequently about financial goals say they feel smart about money, compared to just 35% whose families don't.
So what do you need to know to introduce junior to the world of banking?
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You can get started early. Experts say you can start kids banking as early as ages three to five. They can already start to embrace routine and habits at this point. "The whole idea is getting set up with a regular savings habit," says Neale Godfrey, author of Money Doesn't Grow On Trees: A Parent's Guide To Raising Financially Responsible Children. "Remember when they're little we're starting to teach them all sorts of habits: Brush their teeth, get up on time, put their toys away. We save part of our money, that's a habit too."
But it can make sense to wait until they're a little older and have a meaningful amount to deposit, too. Especially if your bank requires them to keep a minimum amount to avoid fees. Plus, while "it's never too early," according to Lorraine Breffni, Director of Early Childhood at Nova Southeastern University, kids won't start to grasp all that comes with a bank account until age six.
Your kids can probably bank where you bank. "It's easiest if it's your own bank, there's more of a likelihood that you're in there doing something," says Godfrey, noting that then you can go in and bank together.
Plus, you probably need to be on the account. A joint account is one way that many banks are able to offer accounts to kids. Your child's name is on there, but so is yours, for liability and legal purposes. Check that this is an option.
Some banks may only offer custodial accounts, also known as Uniform Transfers to Minors Act (UTMA) accounts, either because of state law or their own experiences, says a spokesperson at the American Bankers Association. This account is entirely different than a plain vanilla savings account. UTMAs are investment vehicles that have restrictions on when your child gains access to the funds (typically 18 or 21, depending on the state). Plus there are implications to consider, like on financial aid eligibility. If a custodial account is the only option at your bank, you may consider looking into another bank for a regular savings account or seeing if there are more options there once your child is a bit older.
The other criteria you're looking for are FDIC protection and minimal fees and balance requirements. While it's true that fewer and fewer accounts are "free," with no strings attached, there are plenty of kid-friendly accounts out there. For instance, there is no minimum deposit to open a TD Bank Young Saver account and the $5 monthly maintenance fee is waived. At Florida's Suncoast Credit Union, kids can open a savings account with just $5. With
Some banks offer special advantages to kids of customers, too. For example, San Diego Private Bank has a free junior savings account if a parent is an account-holder and
What about an online-only bank, with an enticing higher interest rate? For instance, Ally Bank boasts a 0.90% return on their savings account while big banks like
Call ahead. Before you head to the bank, make sure you've settled on a specific account and arranged an appointment. Inquire about a tour of the bank or a trip to the vault too, says Godfrey, noting that this can ramp up the cool factor. Before you go, round up the initial deposit and your kid's ID (like a social security card or birth certificate), plus anything else the bank might require.
Give them a sense of ownership. Let the clerk talk directly with your child when you sit down together. Encourage them to ask questions, says Hollis Harman, a financial planner and author of Money $ense for Kids! You want them to talk with bank employees and feel comfortable and empowered when they go in there. Make sure they see their name on the account and pick their own PIN number if they're getting an ATM or debit card. Impress upon them that this is their very own account and a place for them to put their own money.
Work in some lessons about saving, spending and interest. That's what this is all about, after all. For little kids, stick to simple lessons about how to count their money and always save a portion of it for later. Elementary school kids can start to grasp bigger money concepts, like delayed gratification and planning ahead, says child psychologist Breffni. For instance, if your child sees something they really want, talk to them about how much it is, how they could buy it and if it's something they really need. Explain to them that the benefit of saving money, like part of their allowance, is so they can eventually afford to buy big things. Remember that fun summer vacation? Mom and Dad saved money they earned so they could pay for that trip.
To teach them about smart spending, you can take them to the grocery store, says Godfrey, and show them that you're only going to buy what's on your list. Let them know the family is on a budget, and only spends a certain amount of their money each month on groceries. At checkout, when the cashier swipes your debit or credit card, explain that money will come out of your bank account.
Also sit down with them each month to review their bank statements and watch their savings grow. "As soon as you start to save, you can never say you don't have any money," says Harman, calling the concept of net worth "a game changer."
Broach the concept of interest, too. "You want them to know there is a real bank that can hold their money and keep it safe, that it's going to earn interest because the bank is renting money to use it and they'll give it back to you when you want it," says Godfrey. While admittedly they're not going to make much in interest from a brick-and-mortar bank account, you can later move the money to an online account or invest it. The point is that they should start saving early. Pull out a calculator and show them the power of compounding.
Watch your own behavior. "Parents should be aware of their attitudes toward money," says Breffni. It may sound obvious, but if you're excited and positive about saving money and conscious about spending it, they'll pick up on that. The same goes for fears and anxieties about money, like commenting about not saving enough or having to max out your credit card again.
"Kids are like little sponges," says Harman. You don't want to openly fight or disagree about money with your spouse. Do your best to present a unified front when they're around, so they don't see money as a source of stress.
Don't forget to add a checking account. If you start your kid banking when they're very little, a savings account is all you're going to do. But as they get into their tweens and teens, says Breffni, they should get a checking account and a debit card. "This gives them a level of responsibility," she says, and "they can safely experience what it means to navigate the process" while you're still keeping an eye on things.
Your bank may prompt you at certain milestones, says Lindsay Sacknoff, who oversees retail deposit products at TD Bank, but you can call or visit a branch to request a new account and card, too. It is in a bank's interest to develop a relationship with a young customer as they build net worth and start needing credit cards, loans and investment accounts.
Keep an eye out for missteps. Your son or daughter's first bank account is one with training wheels. Show them how to view their bank account online, and review the fees for overdrafts and out-of-network ATM's. Keep tabs on the account by signing up for email or text alerts.
After they turn 18, you can stay on if you're still subsidizing college textbooks and late night pizza. Down the road, if they decide to keep the same account, you can take your name off.
