Reasons to Open a Kids’ Bank Account
Starting your child’s money journey early in life gives them more time to learn and build healthy financial habits before adulthood. And a kids’ bank account can be a vital tool in helping them do exactly that. Find out the benefits of kids’ bank accounts below.
Raising a child is all about preparing them to make a life and future of their own. And a large part of that is teaching them how to interact with the world of money.
From going to the shops and paying bills to budgeting and building savings, there are so many different aspects of our financial lives that can be taught from an early age using a kids’ bank account.
Read on to find out the reasons why you may want to open a kids’ bank account for your child.
What are kids’ bank accounts?
Available from age 11 and older, in many ways a free kids’ bank account is the same as what you would think of as a standard ‘adult’ current account. Some of the typical features of both include:
- Debit cards that can be used in store, online and at cashpoints.
- The ability to set up direct debits and standing orders.
- Interest on savings.
- Online logins and, often, dedicated mobile banking apps.
Where they differ is that kids’ bank accounts do not offer overdraft or credit facilities.
This means your child would not be able to get themselves into the difficult financial situations that can sometimes arise if you do not know how those products work.
What kids’ bank accounts can teach children about money
The fact that children’s bank accounts do not seriously differ from the kind of current account they will have as an adult makes them a fantastic tool to learn about money. They are a precursor to ‘real life’ and when the stakes are higher.
Responsible spending and budgeting
One of the most important traits a kids’ bank account can help instil is the idea of budgeting and spending responsibly.
By putting a child in charge of their own finances – be that pocket money, or their wages from a part-time job – you can allow them to make their own mistakes in a controlled manner.
Although they may not like it at the time, realising they can’t afford something they want because they have spent the money on something else is a pretty good way of quickly learning the importance of budgeting.
If a child can grow to understand the consequences of their own spending, it will help them build positive habits for the future.
Savings and interest
Having a place where your child can access their own money will not only incentivise them to spend responsibly, but save money as well.
If they want to buy a bigger item, being able to see their savings steadily increase will give them a tangible idea about the benefits of setting money aside in order to purchase something you want.
And with their savings will come interest. Even if the interest rates are low, a kids’ bank account provides an early example of how savings can accrue money in different ways.
Managing and setting up payments
Some kids’ bank accounts will allow your child to set up standing orders and direct debits. The most common example of this would be if your child pays for their own monthly phone bill.
This is another way in which your child can get to grips with budgeting and make sure enough money is in their account to cover their outgoings.
If they can get used to this process early, it will help when they grow older and have to deal with managing regular payments, such as utilities, rent and council tax.
Although it might not immediately come to mind when considering whether or not to open a kids’ account, a benefit of your child being able to use their own debit card is the ability to build up a specific set of social skills.
Interacting with shop owners can help grow their confidence around other people, and play a part in teaching them how to communicate with others in a polite and respectful manner.
Alternatives to kids’ bank accounts
If you don’t think your child is quite ready for a full kids’ bank account, then there are alternatives that can act as stepping stones.
Children’s savings account
If you want to teach your child how to save, but don’t yet feel comfortable with them having easy access to their money via a debit card, you could consider a children’s savings account. This is a way for both you and your child to save towards their future.
Kids’ prepaid cards
If you do like the idea of your child having their own card but are worried about their spending, then a prepaid card for kids can be a good compromise.
You can control and limit the whens and wheres of their spending, while still allowing them to learn how to use a card online, in store and at cashpoints responsibly.
Image source: Getty Images
Connor is a writer and spokesperson for NerdWallet. Previously at Spreadex, his market commentary has been quoted in the likes of the BBC, The Guardian, Evening Standard, Reuters and The Independent. Read more