Many parents fail to teach their children simple life skills like opening a bank account. This sometimes forces their kid to learn from experience and that doesn’t always come out good. Opening a bank account is quite simple. If you’re considering opening one for your child, you need to carry him/her along. We’ve outline below what your child should know and consider when opening a bank account:
- Choice of Bank: Don’t just allow your child choose any bank. Factors like proximity, available branches and ease of entry, should be consider. By proximity, we mean the nearest bank to your home. Whatever bank you choose should have an operating branch close to your home. If not, consider choosing one that is. In the case of available branches, this factor majorly comes into play when you are somewhat far from home and need to make a bank deposit or cash a cheque. It may be really frustrating if your child moves to college and his bank doesn’t have a branch in the area. Finally, the bank should have an easy access. Some banks have very far parking lots, and others have terrible ones. Whichever bank you choose should be easy to enter and exit.
- Type of Account: The two major types of accounts that your child should consider is checking and savings account. While the latter holds bigger importance, the former is just as important, by letting your child open a checking account, he/she can learn valuable checking skills like writing checks, and managing a separate spending account. Checking accounts are designated spending accounts that are majorly used for paying bills. By having both checking and savings, your child can separate his spending transactions from his savings—it helps them keep a budget.
- Charges and Minimum Balances: Many banks have fees that they charge periodically on accounts. Others charge mainly in case of special transactions (like overdraft). Overdraft protection on bank accounts attracts heavy fees, and it is advisable you advise your child against that until they can at least balance their account efficiently. Minimum balance is also important, in fact, more so than charges. Some banks allow a zero cash balance, that means your child can, at any time, withdraw all funds in his/her account. But if they choose a bank with a minimum balance, ensure that it is a low one ($10 or lower).
- Debit Cards: Having a debit card makes it hard to balance bank accounts due to the lure of overspending and the fees associated with it. But on the plus side, a debit card makes it very easy for your child to withdraw funds from his/her account. ATM machines are super convenient and can be accessed anywhere at any time. So you should definitely allow your child opt for a debit card. But if you feel they can’t handle the responsibility yet, let them experience traditional banking for at least six months. And when they prove themselves able to balance their accounts effectively, let them apply for that debit card.
- Consider Co-signing: No, not a music label, still a bank account. By having a co-sign on your child’s bank account, you keep tabs on its transactions. It’s a very good idea to monitor your child’s account, for the first few months at least, so he/she doesn’t go overboard on spending. In the timeframe that your co-sign will last, you can also show your child how to get and dispose his bank statements to reduce the danger of identity theft. When your kid is financially ready to handle his/her bank account independently, then you can remove your co-sign.
Opening a first bank account should be an exciting experience for your child. Make sure you educate them on all the relevant factors, like those mentioned in this piece. And when you open an account for them, observe their use of it and encourage them to gain financial independence with it!