SHOULD MY TEEN HAVE A CHECKING ACCOUNT?
The short answer is YES! About the time they become interested in buying larger items, even as young as 11, 12 or 13, you should consider opening a checking account with your pre-teen or teen. If they do not already have a savings account, open a checking account, a checking sub-account, and a savings account. Why?
Think of opening various types of accounts as setting up a live financial demonstration for your kid. It is a great way to teach them financial responsibility and the importance of budgeting, paying bills on time, and the wonderful feeling of accomplishment when a money goal is met. It’s a great way to give them some independence and establish their financial history. It’s also a way for them to experiment and learn the lessons of adulthood under your supervision.
Teaching money management in the teen years can be the spring board into a financially bright adulthood. Making sure your pre-teen or teen can think ahead and budget how money is going to be spent to best serve their interests will help them achieve long term financial success. Here is a simple 10 step process to helping your teen with their first account.
- Open a checking account, two sub-accounts (in checking), and a savings account with your teen. Download the mobile app, because trust me, they want to use their phones to do everything. The mobile app is a great way to keep budgeting at the tips of their fingers.
Make sure they learn:
- How to make deposits and withdrawals
- How to use a debit card and/or digital wallet
- How to use all online and mobile banking tools
- How to set up a budget either on the app or on paper if the app doesn’t have a budgeting tool. There are also budgeting apps online such as YNAB and Every Dollar that are extremely useful
- When using mobile banking, your teen should be able to see the checking account, the checking sub-accounts, and the savings account you’ve set up with them.
- Ask your teen to write down at least one item that will take 5 weeks to 3 months to save for and nickname one of the sub-accounts “Big Item Fund”. Name the second sub-account “Monthly Bills”.
- Ask your teen to write down items they need to pay for every week. Often teens will spend money going out to lunch with friends at school, or small items at the mall. While not “bills” as we think about them, they are expenses your teen has. If they have legitimate bills you require them to pay for (like phone or car insurance), make sure they are transferring enough money each week into their “Monthly Bills” sub-account to pay for those when they come due.
- Start with paying your teen weekly, because chances are, their “bills” rotate on a weekly basis. Deposit the money directly into their account, just like direct deposit would be from an employer.
- From the mobile banking app, have your teen transfer 10% of their weekly allowance into their savings account, transfer 15% into the sub-checking account that is nicknamed Big Item Fund, a specific dollar amount will go into the “Monthly Bills” sub-account. The amount will be based on how much their monthly bills are divided by the number of weeks in the month. The remaining money stays in the checking account for your teen to spend on whatever they want. Have your teen move that 10% and 15% into the alternate accounts every time they get an allowance deposit.
- Once your teen can manage their weekly expenses effectively, then you can increase the difficulty by doing your allowance deposits every two weeks instead of every week. This makes it more difficult for your teen to budget. If they spend everything in their checking account in the first week, they won’t have any money left for the second week. As tempting as it may be to give in, don’t give your teen more money. A week will not kill them and they will have learned a valuable lesson on the impact of impulse spending. If you spend it today, you will not have it tomorrow.
- After 6 months to a year, start paying your teen on a monthly basis. This is even more challenging! Your teen will have to calculate how much they want to spend each week and avoid the temptation of overspending. Your teen will have to keep depositing 10% into their savings, 15% into their “Big Item Fund” and also transfer enough into their Monthly Bills fund to cover their bills. Many kids even decide to put more than 15% into their Big Item Fund. When they see the funds growing they are excited to make their goal and make their purchase.
- Review your teen’s account with him/her on a monthly bases and ask questions about how they are doing. Don’t make money a taboo subject in the household. Talking about money is learning about money, spending, budgeting, and saving. Being money smart is an essential life skill and one your teen will be thankful for learning earlier rather than later.
- Provide your teen with additional resources to check out and hopefully spark their curiosity about money. These resources are good for parents and teens!
- Early Investor by Michael W. Zisa
- The Motley Fool: Investment Guide for Teens by David and Tom Gardner
- From Ramen to Riches: Building Wealth in Your 20s: or Spending, Saving, Investing, and Managing your Money to Get Rich Slowly but Surely by James G Wood
Budget Apps for Teens and Parents
- Plan’it Prom
The material presented here is for educational purposes only, and is not intended to be used as financial, investment, or legal advice.