In today’s increasingly financial-savvy world, parents are seeking ways to teach their children about responsible money management from an early age. Whether it’s gift money, earnings from chores, or part-time jobs, finding the right place to save and grow their cash can be a valuable lesson in financial responsibility. Here are some options to consider:
Set up a bank account
Opening a bank account offers a secure and educational approach to saving money for children and teens. For younger kids focused on saving, a stand-alone savings account without a linked checking account provides a suitable option.
Older children who are ready to learn about responsible spending can benefit from a checking account. Joint accounts allow hands-on opportunities for kids to manage their money while providing parents with oversight and the ability to set limits on transactions.
When selecting a bank, consider your own financial institution as a starting point. However, exploring local banks or credit unions is also worth considering.
Look for accounts with low or no minimum balance requirements and no monthly fees, as these features are typically more suitable for children who may not maintain a large balance.
The account setup process usually involves providing identification, such as Social Security numbers or birth certificates, for both the child and the parent.
Accounts geared toward kids and teens
Some financial institutions offer accounts specifically designed for young savers and spenders. These accounts provide educational resources, online tools for parents and children, and often have minimal fees.
For example, Capital One offers the Kids Savings Account, which has no minimum deposit or balance requirements, no fees, and a competitive yield.
They also provide the MONEY Teen Checking account, allowing teens aged 8 and older to make purchases, withdraw cash, and deposit checks. Parents can track expenditures, set spending limits, and manage the account through the Capital One mobile app.
Another option is the Alliant Credit Union Teen Checking account, available to teens aged 13 to 17. This no-fee account provides a debit card with preset limits on purchases and ATM withdrawals.
Adult joint owners have full access to the account, and the credit union reimburses up to $20 in monthly fees for out-of-network ATM transactions.
The Alliant Kids Savings Account has no monthly fee and offers a competitive yield for balances of $100 or more.
Weigh the value of a prepaid card
Prepaid debit cards offer a different approach to managing children’s money. These cards are not linked to a bank account but allow funds to be loaded directly onto the card. Prepaid cards set a hard limit on spending, preventing overdrawing and providing a controlled environment for children learning to manage their money.
Families interested in interactive features may consider prepaid cards tailored for families, such as the Greenlight mobile app or FamZoo.
These options offer prepaid debit cards with features like transaction controls, transaction history, parental oversight, and money-management tools.
However, it’s essential to be aware of the fees associated with prepaid cards, including monthly fees, transaction charges, and loading fees. Assess whether the benefits of these features outweigh the costs or if a no-fee bank account might be more suitable.
Invest in the future with a Roth IRA
For children with earned income, such as summer jobs or part-time work, a custodial Roth IRA can be an excellent option to introduce them to long-term investing.
Opening a custodial Roth IRA is straightforward, with major brokers like Fidelity, Charles Schwab, and Vanguard offering these accounts.
Contributions to the Roth IRA are limited to the child’s annual earned income or the yearly contribution limit, which is $7,000 in 2024 for individuals younger than 50.
Parents can also contribute to a Roth IRA on behalf of their child, as long as the contribution falls within the limits. Roth IRAs provide the advantage of tax-free growth and tax-free withdrawals in retirement. This makes them particularly beneficial for children, who typically have lower incomes and may be in higher tax brackets during retirement.
Additionally, Roth IRA contributions can be withdrawn penalty-free at any time, providing a safety net in financial emergencies. Individuals younger than 59-½ who have held a Roth IRA for at least five years can withdraw up to $10,000 for a first-time home purchase without incurring taxes or penalties.
