Whether they earn an allowance, do odd jobs, or receive cash gifts from grandparents, eventually children need something more sophisticated and secure than a piggy bank to safeguard their money, and a teen checking account is the perfect solution. The start of the school year is an ideal time to introduce financial planning to the skills they’re already learning. According to the FDIC*, learning financial basics as a child can lead to lower debt levels, higher savings, and higher credit scores in adulthood and can positively affect net worth and investing skills later on.
“Learning financial basics as a child can lead to lower debt levels, higher savings, and higher credit scores in adulthood.”
It Starts With Basic Checking
If you haven’t already opened an account for your teen, start by helping them research their options. Most banks and credit unions have a basic checking account, and many offer accounts designed specifically for teens. Compare relevant features such as branch and ATM locations, online banking, and mobile banking apps.
Look for an account without monthly fees and minimum balance or debit card transaction requirements. If it’s important that your teen learns check-writing, look for an account with free checks. And make sure the account is compatible with peer-to-peer payment apps and mobile wallets like Venmo, Zelle, and Apple or Google Wallet.
Many accounts offer overdraft protection to cover purchases when the balance is too low. Depending on your teen’s money-handling skills, you may choose to opt out of this feature. Having a purchase denied in real time can teach your teen an important lesson in monitoring their account balance—without racking up hefty overdraft fees.
Regardless of the account and features you choose, if your child is under 18 they will need to have an adult as a joint owner of the account. As co-owner, you will share financial responsibility for any fees or overdrafts.
Money Management for Teens 1.0
Once you’ve chosen the right financial institution and checking account, the real learning begins. If your teen has a regular job, discuss the benefits of direct deposit. Physical paychecks can be easily misplaced or damaged. By having their salary deposited directly into their account, they can access their money right away through in-person and online debit card purchases, writing checks, or by withdrawing cash from an ATM or while making an in-store purchase. If your teen does odd jobs or receives an allowance, they can deposit checks or cash inside a branch, via drive-thru, or ATM. Checks can be deposited anywhere, anytime through the convenience of mobile banking apps.
With convenience comes risk. Instant access to money plus peer pressure can lead to impulsive spending. If your teen doesn’t regularly monitor their account balance, they face the embarrassment of having their debit card declined when out with friends or being hit with costly overdraft fees after the purchase. So, while balancing a checkbook with pen and paper has gone the way of the payphone, it is essential that your teen regularly reviews their account for current balance, spending, errors, or unexpected fees. Debit card purchases, cash withdrawals, and deposits are posted to an account quickly, even if funds can’t be accessed right away. You and your teen can review account status in real time online or with your bank’s mobile app. At minimum, they should be checking their account every week. For a bigger picture view, most banks issue monthly statements, which provides a great opportunity to review account activity with your teen.
Teach Your Teens About Digital Safety
A stranger calls to say a family member is in the hospital—or jail. Your new “boss” emails to ask you to help with a special holiday purchase. Your “bank” texts to ask you to click a link to update your account information. Scammers are ruthless, and they tend to strike when and where you least expect it. With less direct experience in the sometimes rough ways of the real world, teens can be naïve and overly trusting. That’s why it is so important to discuss the basics of financial security and privacy with your teen:
- Choose a credit union that is insured by the National Credit Union Administration (NCUA). This ensures that your deposits of up to $250,000 are covered in the event of bank failure.
- Use strong, unique passwords for your online or mobile banking, and change them frequently.
- Never share account information, passwords, or sensitive personal information with anyone. When in doubt, have your teen direct any inquiries to you.
- Don’t click on links in suspicious emails or text messages purporting to be from your bank or other service provider, like Amazon, Netflix, or Twitch.
- Remember that legitimate financial institutions will never ask for personal or account information via text or direct message.
While modern tools provide a useful safety net, they cannot substitute for ongoing dialogues regarding online security. Sit down with your teen to discuss prevalent scams, identifying warning signs, and the best course of action when a situation feels suspicious. Empower them to seek your guidance prior to engaging with any unsolicited contact requesting private details or account access.
“Starting with Vantage at such a young age was helpful because they were able to really set me up to be financially literate as an adult.”
— Jessica Caldwell, Vantage member
Reach Your Savings Goals by Setting Limits
Cue the eye roll and heavy sighs—it’s time to talk to your teen about budgeting. After all, as restrictive and boring as it is, making a realistic budget and sticking to it are skills that can give your child a financial advantage for the rest of their lives. Now is the perfect time to lock in those good habits.
Start by helping your teen identify the difference between “needs” and “wants.” Needs are essentials: school supplies, lunch money, or a new winter coat because they outgrew their old one. Wants are things that would be nice to have, but not mandatory: a large iced latte, the latest sneakers, or a new smartphone. Teach them how to avoid hidden fees that can eat away at their hard-earned income, such as using out-of-network ATMs, or pay-over-time services.
Then, introduce the 50/30/20 Rule: 50% of their budget goes toward needs, 30% for wants, and 20% for savings. These simple guidelines will help your child live within their means while saving for future goals, like a spring break trip or a used car. A great way to put their budget into practice is to set financial goals for each semester. Not only does this reward your teen for their hard work and careful savings year-round, it reinforces financial responsibility and independence and boosts self-confidence.
Teach Money Management by Example
Even if your kid appears to tune out your safe financial advice, rest assured that they do watch and learn by your example. Check in with them monthly to review their account statement. Are they following the 50/30/20 rule? Are they on track to meet their semester savings goal? Resist the urge to bail them out when they do slip up—a small expense now can teach a big, lifelong lesson in financial responsibility. Don’t be afraid to “think out loud” when considering personal or family purchases to demonstrate your decision-making process. Let them learn from your good habits, as well as your mistakes, so they understand they can always come to you to share their financial worries and victories.
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*Source: Teaching Children About Money Now, Pays Dividends Later. https://www.fdic.gov/consumer-resource-center/2020-09/teaching-children-about-money-now-pays-dividends-later?
