You might be wondering when the appropriate time to open a bank account for your child is. Maybe your child recently had a milestone birthday and a lot of money came in, or maybe you just want your kid to know the value of a dollar. Both are fantastic reasons to open a bank account for your children.
Kids can’t open a bank account by themselves while they’re under 18, but as long as you’re a joint account holder, you can open an account in their name.
When it comes to accounts, there are three options for you to choose from: joint, custodial or a prepaid card option. What you choose will dictate how much freedom your child has in terms of deposits and withdrawals. The type of account also determines how much control you have over the account and how limited or unlimited your actions are. Once you decide on the account type, you can move forward with applying for an account for your child. Wondering if your child is ready for a bank account, or even needs one? Here are some instances where you’ll know the time has come to open up a bank account for your kid.
You Want to Start a College Fund
The average cost of college in the United States is more than $35,000 per year. There’s really no age too young to open a bank account (though some banks might have restrictions), so the faster you and your kids can start saving up, the better. Plus, your money can grow interest over time in a savings account, basically giving your child free money.
Opening a joint savings account enables you to put in or withdraw as much money as you’d like (provided withdrawals are fewer than six per billing cycle), whereas a custodial account can only be used for the interests of the child. The child will gain complete access to the custodial account when he or she turns 18. Both options are great foundations for storing money for college.
While college might seem like a far off goal for a younger child, you can let them have an active role in the process by classifying college as a “long-term savings goal” while giving them the opportunity to save for things in the short-term as well, like candy and games. Though you’ll want to keep the withdrawals low, you can treat kids occasionally as they strengthen their grasp on saving and spending.
They’re Making Their Own Money
If your teenager has a job or your kid is receiving an allowance, they need a place to put the money they’re earning. Opening a bank account helps securely store that money. Plus, this opens up an easier way to be paid via direct deposit for kids with jobs. It also gives them the opportunity to fully manage the money they’re making and learn how to save for life expenses, like a car and gas. In addition, having a bank account teaches teens about budgeting, which they’ll be able to use for the rest of their life. When they first open the account, have them set up a budgeting app as well, so they can fully understand what they’re spending money on.
You Want to Teach Them Life Skills
In a survey, four out of five adults wished they had learned more about finances when they were younger. By opening up a bank account for your child, you’re ensuring they’ll learn the basics early, so money isn’t so daunting in adulthood. Not only will the child learn how to budget, but having a bank account earlier in life helps mitigate them having financial troubles later in life. Once kids open a bank account, they can be taught about the consequences of overdrafts and ATM fees while the stakes in life are still relatively low. Making these mistakes as a teenager is much easier to correct than if they bounced a check in their adult life. Setting up a good financial foundation for kids while they’re young helps assure that they’ll continue to build strong money habits as they get older.
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