Money Matters

Dear Parentworks, 
How young is too young to start a bank account? My daughter is 10 and has earned money not only through allowance but babysitting our other children while I'm working around the home and other chores. Will a bank let her open an account? Can she have a debit card?

- No Interest in the Piggy Bank  

Dear Piggy Bank,
Just as children are never too young to have a bank account, it's never too early to begin teaching them about how money works. Granted a child who is too young to count won't really get the concepts of numbers themselves but they can begin to get the idea that if you give me this then I'll give you that in return. Basically, that is all money is - we're trading one thing for another. Since it is a fairly accurate truism that "Money makes the world go 'round", it is important for your children to begin to learn what it's all about.

First, a word of caution: Just because you teach your child about a concept (money) does not by necessity mean you are placing an undue value on it. Many parents over the years have been reluctant to discuss money with their children because they mistakenly believe that by discussing it - it means it's important...to the extent that it's more important than other things and therefore fear that their children will become obsessed with money and things. Actually, things couldn't be farther from the truth. We all discuss what we value with our children as they grow. We can share with our children what our values are around the topic of money as well. It's a very useful tool for obtaining shelter, transportation, food and yes, even luxuries. But it's important to let them know that money isn't more important than people. Money is just a thing - a useful thing but none the less simply a thing. It's people's perceptions and mis-perceptions about what money means and it's affects on people's values that add the more complex components.

Discuss with your child the variety of ways to save and spend money. There can typically be 3 or 4 categories:

1. Money available to spend immediately. (Keep money at home.)

2. Short term savings. (Allows time to add and build up to buy smaller items - so may keep money at home. )

3. Charitable giving. (Builds in value of sharing what they have with others- keep money at home.)

4. Long term savings. (For big wish items i.e. college, car - keep at the bank for interest earned.)

Next, I encourage you to go on in to your local bank with your child. Let them know why you are there (making sure they know ahead of time that their money will be kept safe by the bank for them to use whenever they are ready to use it) and let them hear you asking your questions. Each group of banks or credit unions can have their own age requirements but most banks require someone to be at least 16-18 years old to open your own account. Go ahead and ask them if you can set up and account in your name with your child's name too, this simply means that you can sign on the account and have your child sign too. Be aware that it makes a difference at tax time who's social security number is used as the primary name on the account (discuss this in more detail with your tax accountant or preparer to decide which is best for your family).

Explain to your child to value of each of these categories and exactly how long term savings and compound interest works. For more information about how to talk with your children about money I suggest "Growing Money" by Gail Karlitz and Debbie Honig. Look in the www.parentworks.com  - Books.

Regarding your question about a debit card, let me just say that a debit card is just like a check. Many businesses do not require a PIN number and will just scan the card which immediately deletes the money from your account. Anyone who has check card protection can have overdrawn money pulled from automatically pulled from another account to cover any shortages. If your child carried their debit card around and it got into someone else's hands you could easily get setting yourself up - minimally for overdraw expenses beyond what you have in the account or maximally for identity theft.

Teaching our children life skills, including money management, is vital for them as they grow and gain life experiences. Appropriate money handling is one of those important skills that they can learn (and sometimes they'll learn hard lessons) which will serve them as they venture out into that greater big world. By bestowing upon them opportunities while they are young and still have your guiding influence, you will be providing them with important resources that will serve them throughout their lives. We all want our children to be successful, responsible adults, capable of managing their own affairs, which will really pay off for us when we're older.