Deciding when to open a bank account for your child can be difficult. There are a lot of different opinions on when it’s appropriate for a child to have a bank account. Some say earlier is better, while others say wait until they are older and have a real need for one. Ultimately, the decision should be made when you, the parent, and your child are both ready for one.
However, there are a few life events that might necessitate opening a bank account. One of these events is when your child gets a job. This is a fantastic opportunity for you to begin teaching your child about finances and how to be responsible with the money he or she earns.
But how do you begin? What is the starting point for teaching your child about money? There is a lot to learn about money and banking, but here are a few good points to touch on when you first get started.
Basics of Banking
It’s important that if a child has a bank account, they understand how to bank. Show them how to deposit a check or cash. Depending on their age, teach them the possibilities they have to access and manage their money. For example how a debit card works and the importance of keeping the card safe, using an ATM, and getting their online banking set up so they can monitor their account whenever they need to.
Payroll Taxes and Deductions
When your child has a job, they need to understand that just because they make $10 per hour, doesn’t necessarily mean they will actually get $10 per hour on their paycheck. Teach them about taxes and why we pay them. Walk them through their first paycheck so they understand each of the items that money is deducted from their check for. Help them determine how much money they will actually take home versus how much they make. This will help them understand that if they work 10 hours and earn $100, they will only get $90 (for example). Doing so will help them be realistic about how much money they really will get.
Setting a Budget
Most children get jobs because they are motivated to have more things. Whether it’s a new car, money for a hobby, or just extra spending money, they usually have things in mind when they start working. This presents a great opportunity for you to teach them how to budget. For example, if they make $100 every other week, you can teach them that they can only spend $50/week or $7/day in order for that $100 to last until the next paycheck. Additionally, get them in the habit of saving money. Set a rule that 10% of everything they earn should go into a savings account. Although the dollar amount might be small, creating the habit will help them their entire life.
Continuous Learning
It’s extremely important that children continue learning about money throughout their life. There is no one point in which anyone knows everything they will ever know about this subject. Instilling a sense of constant learning about personal finances will help them have a strong financial life when they are adults and are no longer depending on you for their care.
If you have questions about opening a bank account for your child or when it’s the right time, please give us a call at 800-835-3400. We would love to help you on your financial journey!