I was shocked when I saw responses to my social media post about kids and banking that I posted about a year ago. My post was about opening up bank accounts for kids. Many parents asked how old their child should be before they open up an account.
However, there were some parents that almost sounded offended by my suggestion of opening bank accounts for the kids. It seemed to me that they thought that the act of opening a bank account was an action reserved for an adult or perhaps an older teen.
My belief is that there is no one-fit-all approach when it comes to teaching kids about
money. Based on my extensive research and experience in this field, I have come to the conclusion that every family needs to do what is right for them in line with their family values.
However, I think that opening bank accounts for our kids is a financial rite of passage. It prepares them for the real world as long as we use that experience to teach them. Opening youth bank accounts does not automatically mean that children are given permission to spend all their money in the account any way they want to.
I like to compare it to obtaining a driver's license. I am not sure how this process works in other countries, but in Canada we have different levels that a new driver needs to complete before they get their full unrestricted driving license. I like to use this kind of thinking and apply it to kids having access to their bank accounts. I believe that parents should set up clear rules when a child’s bank account is first opened. Only if the kids comply with the rules, and the parents are confident that the children are responsible enough, more independence and access to the accounts should be given.
Here are some rules that I have been implementing with my own children. These are just suggestions, and I encourage you to set your own rules.
Rule #1:
My husband and I have full access to our kids’ bank accounts until they turn 18 years old. We would never take any of our children’s money for ourselves, but we need to be able to monitor the transactions and know what is going on.
Rule #2:
The kids can set and change their own PINs (personal identification numbers) for their bank cards, but they always have to share them with us.
Rule #3:
The children are not allowed to share their PINs with anyone else, not even each other. They understand that PINs are personal confidential information, which can put their money in jeopardy if shared with others.
Rule #4:
We have rules on when and where the bank cards can be used. These rules have changed significantly over the years. I can’t remember exactly how old our kids were when they opened their bank accounts. They may have been about 7 or 8 years old.
As they were very young, one of our rules was to keep the bank cards at home at all times unless we were going to a mall or a place where they may potentially want to use some of their money to purchase something. In that case, I used to bring their bank cards and keep them in my purse until it was time to pay. At that time I would hand over the cards to the kids
and they would proudly use them at the check out and hide the pin pad with their little hands as they entered their PIN to approve the purchase. It always made my heart skip a beat and it made me proud just watching them trying to be responsible and act grown up while making their purchases.
The picture on the right is from several years ago. It shows my daughter making a purchase at a toy store with her own bank card while spending her own money.
My kids are in their early teens now and they still do not have the need to carry their bank cards with them at all times. Every once in a while they meet up with friends at a mall or go to a neighborhood pizza joint or a coffee shop, but only then, they take their bank card with them.
We have a very good relationship and while I do not accompany them on these trips any more, I trust them that they are not going to spend all of their money from their bank accounts, just because they have unsupervised access to their bank cards. I trust that they will implement what I have taught them so far about money management when they are out with friends and need to spend money.
Rule #5:
One of the other rules that we have is that every couple of weeks I sit down with each of our kids individually and we review their bank accounts. I show them how to read their online bank statement, check for accuracy and make sure that there are no fraudulent transactions listed.
As the kids get older and become more independent, I suspect that their spending will increase. My plan is to teach them to develop monthly budgets, and use their bank statements to track their spending. I also want to teach them how to pay online bills, send e-transfers, etc.
Rule #6:
Both of my children have savings and checking accounts. They are required to always save a portion of the money that they have coming in as we want to teach them good saving habits.
Once the balance in the savings account is of a sizable amount, we transfer this money into the kids’ investing accounts. Before the transfer happens, we always have discussions about what we are going to invest the money into and why. We reflect upon the investment goals that we have. This also helps as a motivational reminder for the kids that every time they save and invest, they are getting closer to reaching those goals. To find out how I invest with my kids, you may want to check out this article.
Many parents have asked me when is a good time to open up a bank account for a child. I think that is entirely up to you. I know parents who have opened up bank accounts for their children as soon as they were born. We did not do that. Instead we opened investment accounts for our kids as soon as they were born. Any money that they received as gifts or saved from their allowance was invested in these accounts. I described that process in more detail here.
If you live in Canada and want to open up a bank account for your child, but do not know which bank to go with, I have a fantastic free resource for you. If you are not Canadian, skip past this part to read the rest of the tips on how to teach kids about banking and save money, by clicking here.
For Canadians, this free tool will save you a lot of time when it comes to researching which bank account to open with which institution. It will also save you a lot of money in banking fees. It compares different accounts from different banks for you based on your search criteria. It produces a comparison table based on your preferences that shows you how much you would be paying in banking fees for different accounts provided by various financial institutions.
This tool allows you to compare all different banks in Canada. It’s truly a gem. Some parents have not only used it to open up a bank account for their child, but they used it to find out if there is a bank account with a different financial institution that would be more suitable for them and save them money on banking fees in the long run. To find out more about this free tool, check out the short 1 minute video.
In addition to this wonderful tool that compares bank accounts, you may want to consider other ways to save money on banking fees if your child already has a bank account. Below are some questions to ask their banker for potential savings.
A few parents have used some of these questions to see if they can save on banking fees with respect of their accounts.
Am I eligible for a low-fee account if I am a student?
Can you list all of my monthly account service charges?
How much are my ATM fees?
Would banking online save me more money?
Can I save money if I keep a minimum balance?
Do you offer a better account that I could use?
Are there any other ways I can save money (e-transfers, etc.)?
If you want to expand your child’s understanding of how the banking world works, you may want to check out the post below, which I created a while ago for my students to explain to them one of the ways banks make money.
In this photo you see Joe saving $50,000 in the bank’s savings account and earning only $25 in interest at the end of the year. At the same time, Mia borrows the $50,000 from the bank to buy a car, and the bank charges her $1,245 in interest for the whole year. The bank earned $1,220 from lending Joe’s money to Mia.
When I explained this to my students. It was funny to watch their reactions. Many kids were outraged and said that it was not fair that the bank makes money from us by lending our money to others. Some children even said that this should be illegal. I could not help but chuckle and explain that this is only one way that banks make money, and that they make even more money in other ways such as charging us monthly bank account fees, withdrawal and ATM fees, and so on.
After all that explaining, some of my students declared that they were starting to consider a career in banking, to which I replied that they may not want to work for the bank, but instead own a bank or a piece of a bank by investing in its shares of stock. If you want to know more about how I teach my students and my own children how to invest, check out this blog, or join our Wealthy Kids Investment Club.
Well, that’s it for now. Let me know who you bank with and if you are happy with them. Let me know if you tried using the free comparison tool that I shared and what you thought of it. Also please comment about how you are teaching your child about banking. I appreciate it when you share your thoughts and your point of view with me, as I always believe that we can learn from each other. Take care.