Money management is important. A good way to teach your kids how to save money and how to properly spend is to open a bank account for them.
Note that if they are under 18, legally you will have to hold the account jointly with them.
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Checking Accounts for Teens
Years ago, checking accounts were mainly for writing paper checks to send money. Today, it is a great way for teens to place their money into an account and use it with a debit card to make purchases in stores.
Similar to bouncing a check, it is possible to overdraw from your account if there is not enough funds in the account. It is important to teach teens to keep track of how much they are spending and how much is in their account, as well as to leave a cushion in case they make a mistake.
The cost of bouncing a check is about $30, and on top of that fees to the merchant must be payed. This is quite a bit of money for anyone, but especially a teenager working a minimum-wage job.
Additionally, there is something called overdraft protection. This allows you to still use your debit card after you run out of money in your account. This comes in handy when you desperately need cash from the ATM or want to avoid the embarrassment of having your card declined.
However, each transaction of overdraft you make comes with a fee, about the same as the fee for bouncing a check. This can be quite expensive for a temporary loan.
Some individuals may prefer having their card declined than having to pay fees. If you would not like to incur these fees and discontinue your overdraft protection, simply notify your bank. Another alternative to this problem is to link the account to a savings account or a credit card.
Teaching Teens How to Save Money
Nevertheless, will this actually teach your teen about money management? Or will it obstruct it?
Before you open an account, consider what you would hope to achieve with it. Does your teen have a job or receive an allowance? Have you decided what percentage of their income they must save or have access to? Will you let them spend on whatever or place restrictions?
A good thing about debit cards, and credit cards, is that they allow you to track your expenses. This is an advantage it has over cash.
Even adults ponder where all their money could have gone, and if they have a list of all their transactions from the card it’s easy to answer that question. This provides a great way to decide whether some of your transactions that month were worth it, helping you devise a different plan for the next month.
Best Way to Save Money with a Checking Account
Once you are positive you would like to open a checking account for your teen, you need to find the best deal. What is it that you should look for, you ask? There are three important things.
- Minimum Balance
- Many banks will charge a fee if the checking account falls below a minimum balance. If your teen does not have enough money yet, it may be best to reconsider until they have enough to avoid fees. And do you trust your teen to not go below that minimum threshold?
- Interest Rates
- While you may want to get the highest interest rate possible, most of them are so low on checking accounts that this difference is likely to be negligible. Interest rates on savings accounts are mainly around a little below 1%, and checking accounts are even lower than that.
- Fees
- Read up on the fees a bank may place on you with a checking account. Fees would include low balance fees, ATM usage fees, overdraft protection, and more. These fees could quickly diminish your funds.
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Bottom Line
Money management is a highly important skill to possess and many people never learn. The sooner you can teach your teen how to save money, the better off they will be in the long run.
If you don’t know where to start, try out the Chase College Checking Account.
For more information on banking, visit our bank guides!
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