Where did you store your money as a kid? In a piggy bank? In a box under your bed? This may have worked back in the day, but as things become more digitized, it only makes sense to keep your children’s money in a bank account. Banks are a good place to keep birthday money and allowance safe. A bank account can also be an important tool to teach your children about financial literacy.
But when should you open your child’s first bank account? We’ll share some of our best tips and tricks to set your children up for long term financial health.
When to open an account
It’s difficult to determine what the ideal age is to open your child’s first bank account. It’s less about a set age, and more about when they begin to receive money either as gifts or in the form of allowance. As soon as they have an interest in saving and spending their own money, a bank account can help them start learning the skills they’ll need to become financially independent one day.
Different rules may apply depending on your child’s age and the bank where you open their account. Although Canadian laws stipulate that you can open a bank account at any age, most banks require minors to have an adult participate in the process. This could mean setting up a custodial account or being named as a co-signer. If the account will earn interest, your child will also require a Social Insurance Number (SIN). Once your child reaches the age of majority, you can remove your name from their account.
Ask your bank to help you determine what kind of account would be best for your child. Many banks offer accounts specifically designed for just this kind of scenario, so don’t limit yourself to where you do your own banking. It might be worth checking around to see if there’s a better option to meet your child’s needs.
When you go into the bank, they’ll require some basic personal information about you and your child, and you’ll need to provide proper identification. Although it’s not necessary, depositing some money into their new account will make the experience more exciting. Your child will then be given a debit card. Have them choose a PIN that will be easy for them to remember, but not as simple as their birthday or 1234.
Depending on the age of your child, you can either choose to keep the debit card for safekeeping or immediately give them access to it. If you give your child their debit card right away, make sure they understand what it is used for and how to take care of it to avoid having it lost or stolen. Maybe their first trial purchase could be a wallet!
How to use their account as a teaching tool
You’ll want to emphasize the importance of saving to your child early. This way, it’s more likely to become a lifelong habit for them, which is an invaluable lesson to impart. Hey—they could even become better at it than you.
Savings accounts enable kids to start saving money for big things, like buying a car or going to university. But it’s important to give them access to some spending money as well so they have opportunities to understand how to use it.
One way to teach them financial planning is to help them set up a structure for savings. Say they get $100 for their birthday. They’ll likely have lots of purchases they want to make right away, but you could suggest they put a certain percentage into savings. Doing so means they’ll be able to watch their savings grow and will underscore the value in not spending all their money right away.
Saving is important, but letting your kids have dedicated spending money in a chequing account is also useful. It will teach them what money is and how easy it can be to spend it quickly. When your child first has access to their chequing account, it’s likely they’ll spend the money very quickly (and probably on silly things). When they realize how fast their money can disappear, they’ll learn to be smarter about saving.
If your child is older and you want to help them work towards a really big goal, sit down and discuss it together. Develop a plan you both agree on that will see some of their income immediately diverted into a special account. It’s likely that the bank will be able to help you split the money into separate types of savings accounts: one they can’t touch that can be dedicated for school or something else, and one that they can withdraw funds from with ease.
How to provide oversight
How close of an eye you should keep on your child’s account is at your own discretion. If your child is very young, you may want to review their monthly statements to make sure the card hasn’t somehow been compromised.
An older child might be ready for more freedom, and any discretionary spending is a good way for them to learn financial responsibility. But if you do want them to save for school or other important purchases, inquire about the balance of their savings accounts every now and then.
Getting a bank account for your child is an excellent way to teach them financial literacy and responsibility. They will learn the importance of saving towards their goals and just how easy it is to spend money quickly (and on the wrong things) when you have it. Getting them used to having a bank account will make it easier for them to move onto more adult responsibilities, like getting a job and paying taxes.
Questions about opening a bank account for your child? Feel free to reach out to us at MMT Chartered Professional Accountants for more information about making smart financial decisions for your entire family.
