You may have opened a savings account for your children as a way to sock away money for college or to teach them about investing. As they grow, however, they’re going to need to learn some other money basics, and that includes managing a checking account.
Those skills might be more valuable today than ever before: 36% of college students at 4-year institutions noted that overdrafting and managing a bank account are the leading causes of financial stress, according to the 2015 Money Matters on Campus survey by education technology firm EverFi and Higher One, a college financial services company. Furthermore, 12% indicated they never check their balances because they are too nervous.
Starting a checking account early for teens is a key way to avoid pitfalls later. “It helps them better learn concepts related to money and can give them valuable practice in a safe environment,” says Natasha Campbell, founder and CEO of Lifestyle Success Unlimited, a financial education company in Kissimmee, Florida.
Here, experts weigh in with strategies to help a teen open and maintain a checking account.
5 tips on teen checking accounts
- Choose the right age
- Know what’s available
- Set it up together
- Monitor activity
- Make it a learning process
1. Choose the right age
While many banks allow you to open a checking account starting at age 13, the best time for your teen might coincide with other milestones, such as a getting a part-time job or learning to drive.
“Generally, what I look for is a level of responsibility that usually comes about 6 months after getting their driver’s license,” says Christina Esterly, a Rio Rancho, New Mexico, mother who has helped her 5 children open checking accounts. Look for signs that your child is able to hang on to a wallet or purse and not lose a driver’s license.
For accounts geared toward 13- to 17-year-olds, you’ll be a co-owner of the account as a parent. This gives you the ability to view the account and set up limits and restrictions.
2. Know what’s available
“There’s a wealth of information online,” says Ryan Bailey, head of retail deposit products at TD Bank. You’ll often find that student checking accounts have lower fees or none at all. At TD Bank, for instance, students who open an account and are younger than 24 will pay no monthly maintenance fee and are not required to hold a minimum balance.
Check for features that will click with tech-savvy teens. “We try to push everything into an online presence,” says Valerie Magness, first vice president at Farmers & Merchants Bank in Long Beach, California. Look for perks such as free direct deposit, mobile banking, e-statements and a debit card.
Some accounts will let you transfer money from your account to your child’s checking, making it easy to get money to your teen.
And if college is on the horizon, look for a bank that has a location on or near campus. “You’ll want to avoid ATM fees,” Bailey says. You can search for checking accounts by city or ZIP code with the help of Bankrate.
3. Set it up together
If possible, link your child’s savings account to the new checking account, advises Allan Prindle, president and CEO of Power Financial Credit Union in Miami.
Then, walk your child through the process of depositing money earned from jobs, birthdays or allowances to the account. Place some in savings for later and some in checking for spending.
Remember that while your child has watched you swipe a debit card for years, he or she may not fully understand how the transaction works. “Explain that a debit card connected to an account is the same as cash,” Campbell says.
Then, when your child uses a debit card, “track the transaction and watch the process,” suggests Prindle. Show how after the card is swiped, funds are deducted from the account. Hang on to the receipt until the transaction goes through.
If the bank allows you to deposit checks through a smartphone or tablet, show your child the steps involved to take advantage of this feature.
Also, “teach your child the importance of never sharing account information with friends and to always use privacy measures when shopping,” adds Campbell.
4. Monitor activity
Once your son or daughter grasps the basics of the transaction process, consider a strategy Campbell coins the “power of 60.” Most banks have apps for use on a smartphone or tablet. Show your child how to take 60 seconds every day to check the account balance.
Many institutions have a daily debit card limit for protection, notes Prindle, and “you can customize the amount charged on a card during the day.” Try starting small with a limit of $50 or $100 a day. Also consider setting restrictions on ATM withdrawals, beginning with $50 a day.
In addition to checking activity online, request text alerts if the account is low.
5. Make it a learning process
Esterly has set up a system in which her teens receive a stipend once every 2 weeks. From that amount, they need to cover gas, dining out, miscellaneous purchases and entertainment. “We also warned them if they overspent on some categories and didn’t have gas money, they’d have to do extra chores to earn more money or take it out of their savings account,” she says.
“Most institutions allow you to set checking on and off for overdraft. Turn it off,” advises Prindle. Your teen might be rejected by a merchant at the point of sale because of insufficient funds, but you’ll avoid the overdraft fees, which average $32.74 per instance, according to Bankrate’s most recent annual checking study.
“There’s so much more technology available today than in the past,” Prindle says. “It’s refreshing to be able to have these limits and controls — you can let them do a few things, but now the account won’t go negative. If they lose the card, you can turn the card off. The technology is pretty neat.”