By the time kids reach their teen years, they aren’t just dealing with a weekly allowance anymore—they’re starting to work part-time jobs and earn their first paychecks. They’re also starting to consider life beyond high school, whether they’ll be going to college, working and living on their own, or both.
For these teens—and kids even younger—opening a checking account is a great idea. Having a checking account can help kids and teens learn financial literacy in a safe, secure environment, and it can help build their financial reputation, too. Keep reading to learn some of the biggest benefits of opening a checking account for a child or teenager, and how to open one at a bank or credit union.
The Key Benefits of Having a Checking Account for a Minor
The biggest advantage of opening a checking account for a child or teenager is that it gives them a head start on managing their own money. Kids with checking accounts can start to learn basic adult routines, such as tracking their balance or withdrawing money from an ATM, and familiarize themselves with common banking tools.
Having a checking account can also help a child learn fiscal responsibility. You might help them review their monthly account statements, so that they can see where their money went, and even set up a budget. This will help them enter their post-graduation life with a more secure footing.
That leads us to another key benefit of setting up a checking account for a minor: it can help them make financial mistakes in a safe environment. All of us are bound to make mistakes—like overdrafting—at some point in our lives. When kids and teens are managing their money under the guidance of their parents, they have more room for error, and can learn these important life lessons while the stakes are still low.
Finally, having a checking account is the first step in building a young person’s financial reputation. Even though checking accounts don’t directly impact credit history or credit scores, lenders may ask for active bank account numbers on credit applications.
Should I Get My Child a Joint, Custodial, or Prepaid Bank Account?
If you are investigating the different types of bank accounts that are available for young people, you may have come across the following terms and wonder which is the best option for your situation.
Joint Checking Accounts
Bank accounts marketed as “bank accounts for kids” are often joint checking accounts. Typically, each joint account owner has complete access to the funds, although some banks have “safety” features which allow parents to limit the account’s activity. For instance, if overspending becomes a concern, you might be able to suspend debit card access for a set time period. Joint accounts will also typically send parents updates and text alerts regarding account activity, so overdrafting becomes less of an issue.
Custodial Checking Accounts
A custodial checking account is an account that an adult opens and manages for a child until he or she reaches the age of majority (which can be 18, 21, or even 25.) Unlike joint accounts, which allow children to spend money and make withdrawals, a custodial account is fully managed by its adult custodian until the beneficiary reaches the age of majority. At that time, the account is turned over, and the beneficiary gains full ownership of it.
Prepaid Bank Accounts vs. Prepaid Debit Cards
There is often some confusion between prepaid bank accounts and prepaid debit cards. A prepaid bank account is generally for those who need a bank account but cannot acquire one due to poor credit history. These accounts limit risk to the bank by only giving account owners access to cash which they have paid into the bank. Debit cards and overdrafts are generally not available, but owners can still accept salary deposits and make withdrawals.
A prepaid debit card, on the other hand, is often a good financial option for children. Prepaid cards for kids work differently from traditional debit cards, in that they are detached from a checking account, and are usually funded by a parent’s main account. The parent can load or transfer money onto the card and monitor the child’s spending via website or app. Prepaid cards are usually the best option for kids that aren’t quite ready for a debit card and checking account of their own.
How Do Checking Accounts for Minors Work with Credit Unions?
Typically, a checking account at a bank and a checking account at a credit union will be very similar. However, there are several differences between credit unions and traditional banks that might influence where you decide to open your child’s account.
A credit union is a member-owned, not-for-profit financial institution which belongs to its members, not investor shareholders or a corporation. Credit unions offer many of the same financial services that banks do, like loans, credit cards, and deposits. Unlike with banks, however, those profits are reinvested back into the credit union’s members in the form of reduced fees, higher savings rates, and lower loan rates. In many cases, joining a credit union can help you save more and receive more favorable benefits.
Credit unions are usually formed to support a group of people who share a common bond, like place of employment, location, or religious affiliation. This gives them a much stronger “community” feel than one might experience at a large bank and allows them to build more personal relationships with their members. Credit unions are also known for providing financial education resources for all ages, which can make them an ideal partner for those just starting out in the financial world.
How Do I Open a Checking Account for My Child?
Whether you choose to join a traditional bank, or a credit union, opening a checking account for a minor is easy. While requirements may vary from institution to institution, in most cases:
- Both you and the minor must provide a valid primary ID, such as a state ID card, driver’s license, or passport. The ID must have a photo.
- You may both be asked to provide a secondary form of ID, such as a student ID or a major credit card.
- You must provide proof of address, such as a utility bill or financial statement.
Depending on the account, the minor may have to be a certain age, such as 12, 13, or 15. Often, both you and the minor must be present to open the account.
If you want to open a children’s checking account at a credit union, you must also be a member of that credit union, but you often can establish membership at the same time you open your account. We can help find a credit union near you! Do your research, and both you and your child can benefit from the many advantages credit unions and checking accounts offer.
