When I was 16, my parents offered me the use of a hand-me-down car, but only if I paid for gas, maintenance and insurance. That meant a job and money. So I hopped in the car with my mom and drove over to the local grocery store and signed up for a “free checking for life” account at the in-branch bank. Like any teen, my first checking account was a big step in my personal finance journey. If you are a parent or a teen and want to know more about how teens should start with banking, follow along with this guide to learn more.
How to Introduce Your Teen to Money Management
No one is born with an in-depth money education. And school systems from coast to coast do a pitiful job educating young people on how to manage their money. So it falls to parents and guardians to prepare young people for a successful financial future. If you are reading this, odds are that means you.
Money is a taboo topic in many households, but that is a poor way to teach your kids about money. Involve them in some family financial discussions. Help them understand the basics of budgeting and managing a checking and savings account. Give them some freedom and flexibility to make their own financial decisions. Don’t throw them in the deep end of the pool without knowing how to swim. Make it a conscious process where they continually learn more about the value of money and how to handle it responsibly.
What Kind of Bank Accounts Make Sense for Teens
My first checking account came from a big traditional brick-and-mortar bank with ATMs and branches dotting the United States. I closed that account in my 20s in favor of an online bank. Depending on your teen’s money needs, select either an account at a bank with physical branches or an online-only account.
Teens and Millennials are digital natives. They probably feel more comfortable navigating an app or a website than they do talking to a human in person. Whether this is a good or bad thing is a debate for another day, but it is important to understand that today’s teens likely have very different money needs than you did when you were a teen.
If your teen will need to regularly deposit cash, because, for example, they have a job that is paid partially through tips, an account at a local credit union or brick-and-mortar bank makes sense. However, if they don’t need to deposit cash and can handle most of their banking online, there is no reason to pick an account with low interest rates and high fees. Online banks are the way of the future and can be a great option for teens starting out.
Capital One 360 offers a teen checking account. This is perfect for getting started with banking. Other great choices include Ally Bank, Simple and Chime. For brick and mortar, a local credit union may be the best option. For a large, nationwide bank, Chase is a leading choice, but beware of fees and low interest rates.
Parental Guidance Builds Good Habits
If your teen is less than 18 years old, you’ll need to sign onto the account with them. This means you are legally liable for what they do with their account. Unless your child is very responsible, you shouldn’t just sign the papers and leave them to fend for themselves. You should stay an active part of their finances so when the time comes to go on to college or a job, they make the best choices from the start.
Here are some important habits to instill in your teen before they leave the nest:
Monitor account balances — A friend in college regularly bounced rent checks, causing stress for all of her roommates. She always came up with the money and resolved the situation afterward, but it is a situation that should have been avoided from the start. Each of those overdrafts cost her about $30 in addition to the harm in her relationships with her roommates. Teach your kids to avoid these kinds of issues.
Save a portion of your income — With connected checking and savings accounts, your teen can put away a portion of their income at a higher interest rate and keep a portion in their checking for regular spending. They should understand the concept of saving some of their money for later.
Understand where your money goes — Budgeting is an important life skill that far too many people lack. Start your kid’s mastery of this skill at the first possible opportunity. Whether a paper and pencil budget, spreadsheet or budgeting app makes the most sense is up to you and your child.
This is far from an exhaustive list. Part of the challenge of parenting is recognizing areas you can help your child learn and grow. Personal finance is personal, which means it is different for every person. Teach your teen lessons from your own successes and failures. This will put them on track for great future banking and money management success for years to come.
Start Your Teen With the Right Financial Footing
The teen years are incredibly formative for our lives. While your teen is learning and improving in their education and social skills and starting to form a career path, it is a wonderful opportunity to learn about banking and money. Help them get off to a good start, and they will be destined for a lifetime of personal finance success.