A Child’s First Bank Account

Once a child starts to receive an allowance and learn about money management, they are ready to open their very own bank account. Most banks offer accounts especially tailored to teach children the basics of saving, investing and budgeting. These accounts tend to be free and pay interest. They can include ATM cards, checks, educational material, monthly or quarterly newsletters and online access.

Depending on the type of account, your child will most likely have to sign a signature card. This can be done in the bank itself or, if banking online, you can print out a signature card, have your child sign it and mail it to the bank.

It’s easy to set up transfers from the parent’s account to the child’s bank account. For example, weekly allowances can automatically be transferred once a week eliminating the parent’s need to search for cash and helping the parent keep their commitment of providing an allowance.

As you set up the bank account and weekly transfers, discuss the ground rules and any expectations for saving and spending. For example, if you also have a college fund set up, now is a great time to encourage putting aside a percentage of money for college. Not only does this make for a great excuse to write a check each month but it also increases the child’s ownership of their future education. It also teaches a fundamental saving rule: pay yourself first.

With online banking, it’s tempting to simply set up a recurring transaction for something like monthly contributions to the college fund. There will be a time to teach that. For now, go with check writing. Writing out a check, entering it into the checkbook register, subtracting the amount from the balance and mailing the check are basic skills that the child should master before relying too heavily on the computer.

While automatic transfers into the account serve their purpose in making sure the allowance gets in, do let the child make some actual deposits from time to time. Birthday money, piggy bank cash and money earned from chores are all great excuses to pull out a deposit slip and head to the bank.

Each month, a statement arrives in the mail. This is a great time to teach your child how to balance his checkbook. Compare each transaction on the bank statement with the transaction in the checkbook to make sure they match. Teach him how to account for checks that have not cleared the bank. Do this even if using banking software such as Quicken or Microsoft Money because learning to balance a checkbook teaches math skills, accountability and enforces an awareness of where the money is going.

As the child learns the basics, you can introduce more complex concepts. Allow him to use his ATM card occasionally instead of writing a check. Set up the account in the software of your choice and teach him how to use it. Try online banking. Discuss identity theft and measures to protect against it. Let him observe and help as you pay your own bills.

Teach basic budgeting principles and keep it fun. Most importantly, allow your child to save up for a special, and easily reachable, goal. By taking your time and teaching your child the basics in a fun and rewarding way, you will have planted the seeds to make saving a lifelong habit.