There are lots of things that kids need to learn as they grow up, from how to tie their shoes to how to drive a car. But children also need a financial education, starting with the basic banking products that will form the foundation of their financial life.
But, as a parent, how do you do that? When is the right time to introduce savings and checking accounts, and how can you use them to give your children solid footing on the path to financial security as an adult? Let’s explore this topic.
Ways for children to earn money
Before they can even begin to use or need a banking account, it’s important for kids to understand the value of money — including the work it takes to earn it. Here are a few ways kids often earn money to put in their bank accounts.
Allowance
An allowance is a great way to teach children how to handle money, especially at an early age. There are age-appropriate tasks you expect your children to do, such as picking up their toys, making their bed, or putting away their clothes.
But there are also extra tasks that you can “pay” your children to do to let them earn their allowance. This can be tasks like taking out the trash, folding the family towels, or vacuuming the house. These tasks can not only teach them the value of working for money, but also give you an opportunity to teach them basic financial lessons. A good place to start is how to budget. Followed closely by a lesson on how to save.
Running their own business
OK, we’re not suggesting they open a brick-and-mortar shop. But there are money-making opportunities that your child can consider as their own business. Here are a few examples I’ve seen:
- Mowing the neighbors’ lawns
- Walking the neighborhood dogs
- Cleaning the neighbors’ trash cans
Getting a summer or part-time job
As they get older, children will probably start looking to earn a more consistent income. There are several industries that offer teen-friendly positions. Not all jobs are fast-food in nature, though those jobs are very common. There are other options: My son turned his lawn mowing business into a part-time job with a local landscaping company. One of his friends got a job at a local car wash.
What is a youth savings account?
Many families start with a youth savings account before opening a youth checking account. If your family is like mine, you might find that your kid’s piggy bank began to fill up as visiting grandparents added a few extra bills or two.
Instead of using that money to buy them another toy they won’t play with or will quickly lose interest in, you can set aside some of that into their savings account. A perfect gift for when they get older.
Features of a youth savings account
- ATM cards: While your child’s ATM card can’t be used to make purchases, it can help them learn how to use an ATM, and how to manage their account balance. However, some banks do issue debit cards linked to savings accounts.
- Interest earning: When you teach your children about saving accounts, you can compare it to their piggy bank. Help them understand that they are setting aside money for future use, as well as how interest rates work and how their money can make them money, even if it’s just a small amount. You can gain some ideas from this article on how interest on a savings account can help you accomplish your goals.
What is a youth checking account?
Think of these accounts like a bike with training wheels — they can help teach your children to manage their money while you’re still there to help guide them.
In most states, your child will need to be 18 to open their own bank account, so this will be a joint account with you and your child as co-owners. Generally, your child is the primary account holder, but you manage the account. Your child will still get most of the benefits and features of a traditional checking account — and their first taste of money management.
Features of a youth checking account
While a youth checking account isn’t quite the same as a traditional checking account, your child will still have access to some of the benefits, which can help them learn how to manage their money. For example:
- Debit cards: Most U.S. banks will only issue a debit card to kids ages 13 and older if a parent helps them open a youth checking account. Your child can use their debit card to access their money at ATMs and make purchases — a good opportunity for them to learn about budgeting, spending, and managing their money.
- Direct deposit: If your teen has a part-time job, they can opt to have their paycheck deposited in their youth checking account. This can be a convenient way to help your teen learn about managing their account balance. Plus, if it’s a direct deposit into their USAA Youth Spending Account, they can possibly be paid up to two days early. See note 1
When should your child get a youth checking account?
Many teens usually get a checking account when they start earning money through babysitting, dog walking, or even a part-time job. That’s generally the time they begin to manage their finances a bit more. My son got his checking account when he started mowing lawns for the neighbors, and it came in real handy when he then started working for a local landscaping company.
When your children start buying more and more things for themselves and start living according to their own budget, that’s a good indicator they should start using a checking account.
Benefits of youth accounts
If you’re trying to decide how to teach your children about checking accounts or savings accounts, it can help if you keep the basic purpose of each account in mind. A checking account is for everyday transactions, while a savings account is where you hold money for future savings goals. But there are other benefits as well.
It teaches financial responsibility.
One great benefit to having both a checking and savings account is teaching children to help maintain the purpose of the funds. Saving is for the future and checking is for my spending. Comingling funds in one account, even with a bucketing or enveloping feature, can make it easier for your child to spend money they are saving for family Christmas presents on something that will bring them instant gratification, like their favorite candy.
A checking account also presents an opportunity to teach kids to live within their means by teaching them to check balances to make sure they don’t overspend. If your child uses direct deposit, it can help teach them the value of a dollar — when they see that paycheck in their account, they have a better understanding of how much work it took to get that money, which may make them think twice about using it for frivolous purchases.
It’s a safer way to carry money.
Are your children prone to losing items like mine are? I wonder how much of my life has been spent searching for lost toys or a lost wallet or purse. A debit card tied to your child’s checking account can be a safer way for them to carry money than actual cash.
How to choose the best youth account
Do your children need both a checking and savings account? At some point, probably yes.
A checking account presents an opportunity to teach kids to live within their means. Teaching them to check balances to make sure they don’t overspend. And having two accounts helps you start or continue the conversation of needs versus wants.
Consider your teen's age and needs
Accounts should be age appropriate. Often, you’ll start your child out with a saving account to put extra birthday or Christmas money into; younger kids usually don’t need (and might not be able to handle) a checking account. Then, as they get older and start having more money coming in, add a checking account so they can learn about spending.
Consider transactions
Even though no longer required by law, some banks still limit how many transactions you can have each statement cycle with a traditional saving account; it’s usually around six to ten. Some banks, like USAA Federal Savings Bank, don’t put these limits on youth savings accounts.
Even without those restrictions, checking accounts are best used for transactions and savings accounts are best used for savings.
Parental Control Features
There are some beneficial aspects to certain youth accounts that help you protect your children.
For example, you should be able to see their transactions. This helps you encourage them to stick to their budget.
Most youth accounts also give the co-signing parent the ability to lock their child’s card, which can be a good way to discipline them by cutting off access to their funds. This might be controversial, but if they're about to make a big financial mistake and you want to protect them from it, lock their card while you teach them the lesson.
Or remember our conversation on kids losing things? Well, this is very possible with their debt card as well, so if they misplace their debit card, you can lock it to help protect them from fraud.
Some youth accounts also may have no overdraft fees, in addition to protections like fraud protection or zero liability. You may also be able to choose to receive alerts when your child’s account balance gets low or if they make withdrawals above preset limits.
Additional tips for parents
As your child gets their accounts, it’s a great time to kick-start their financial education, and as parents, we are always looking for opportunities to teach our children life lessons before they leave the nest. So, what teaching opportunities do youth banking accounts afford?
How to budget
Savings accounts and checking accounts can help teach disciplined budgeting. If you are unsure on how to proceed, check this article on helping teach teens the value of budgeting.
Budgeting is a key part to teaching kids to live within their means — for example, teach them to regularly monitor balances to avoid spending money they don’t have.
Saving for specific goals
Teach them to save for specific goals. This is a valuable lesson that many adults could stand to learn. This also helps your children learn the value of money and finally realize that it doesn't grow on trees. Plus, you’ll be surprised how that must-have item really isn’t necessary when they are paying for it instead of Mom and Dad.
There’s also a sense of pride and extra excitement when they purchase that item or experience using money they have worked and saved for. If you need a refresher on how to save, visit USAA’s page dedicated to this topic.
Learning responsibility
This next point was one my son told me as I was talking to him about this article. I thought it was good insight into the mind of a teenager, so I’m sharing it. Hey, we parents have to stick together.
My son said he really enjoys being able to view and manage his accounts on his USAA Mobile App without having to login into his parents' account. This is a good feature as it’s teaching him responsibility to manage his finances, and it gives him a sense of independence.
He can easily save in his savings account and then move that money to his checking account when he wants to spend it. Without this feature, it’s more difficult for him to put into practice what’s he’s been taught. And trust me, with his dad (me) being a financial planner, he’s been taught his whole life.
Plus, if you are uncomfortable sharing your financial information with your children, this provides a certain level of separation. Your child can view their accounts but not yours.
Keep in mind that your child may need to be a certain age to access the app themselves. At USAA, it’s currently age 13. One more benefit of being a teenager that you can reward them with. And you can use it as an opportunity to teach them responsibility that comes with every increasing year.
Understanding family values
Opening their youth accounts also gives you the opportunity to teach your kids about your family values. You can show them what’s important to your family, like charitable contributions, saving for education, or saving to help those less fortunate.
You can also encourage hard work through getting a job. This helps your kids see the value of working to achieve goals.
Even though they may seem simple to an adult, youth checking and savings accounts can be a great way to start your kids on their journey to financial security.
Ready to start your kids on their financial journey?
Learn more about USAA Federal Savings Bank youth banking accounts.