I recently talked about the right age to open a child’s bank account. That leads to the obvious question about its advantages and disadvantages. If you’re ready to teach your child about money management, giving your child their own debit card with linked spending and savings accounts plus a small monthly allowance gets them off to a good start.
The good news is there are way more advantages to allowing your kid to have a bank account at a young age than there are disadvantages. The bad news is the disadvantages that exist are pretty serious if you’re not prepared to overcome them.
Advantages of Opening a Kid’s Bank Account at a Young Age
From a parent’s perspective, your kid having their own bank account is a convenient way to keep track of their spending without having to worry about cash that can easily get lost. And that would be reason enough. But there are loads of benefits to your child too.
1. Developing Good Money Habits
You can teach financial literacy. But in my experience, people lean toward either spending or saving. I’m no psychologist, but it may be inherent in their personalities, and it’s certainly evident in my children.
My son saves 25% of his allowance and 50% of other money he receives and lets it accrue for big purchases. My daughter can’t resist the urge of a good Hot Topic sale. Early intervention can’t change who they are, but it can instill some good savings habits, regardless of their natural tendencies.
That’s because having control of a set income at a young age can teach children the value of money and how to manage it. If your child tends to spend (your) money, having a finite source of their own might help them realize how quickly their allowance vanishes with one Target purchase. And little savers will be inspired as they watch interest accrue and realize if they wait, they can afford that video game they’ve wanted for months.
Having their own account also acclimates your child to discussions about money, which is a big part of the battle when it comes to financial literacy. A 2023 study from Intuit found that Gen Z, which encompasses children and young adults from age 8 to 23, would rather discuss mental health, sex, or politics than money.
Just as with these other topics, starting the money conversation early — and in age-appropriate ways — can create a culture of openness within your family.
2. Building Financial Literacy & Responsibility
In addition to building responsibility around money, having a bank account and linked debit card also teaches kids the basics of how to handle a bank account. They can view their accounts in the mobile app and see exactly where their money goes.
For instance, when my son reviewed his statements and saw how much he was spending on ice tea and snacks from 7-11, he started going grocery shopping with me more frequently. “Eat at home” is Personal Finance 101, but it was a profound lesson for a 10-year-old.
Plus, just learning the logistics of how to process a debit card transaction, sign for a purchase, or keep an eye on fraud alerts gives kids an advantage when they enter adulthood.
After working middle school book fairs for the past three years, I say this as a self-proclaimed expert: Kids feel like hot stuff when they can whip out a debit card and make a purchase just like they see their parents do.
Whether they’re at the pizza place, skate shop, or school, that feeling of empowerment amplifies in front of their friends. But even more empowering is the feeling they get from knowing how much they have to spend in their account and being allowed to decide how to spend it. Debit cards give kids access to an app to check balances, set savings goals, and transfer funds between checking and savings accounts.
4. Opportunities for Saving & Earning Interest
If you choose an online bank that pays interest on savings or even has a roundup-your-purchase-into-savings feature, your children can quickly earn extra cash and learn the concept of compounding.
Many online banks with accounts optimized for kids and teens offer high-yield savings. For instance, Copper Bank, an online-only bank tailored to kids, offers 5% interest when kids reach savings goals they set interest when kids reach the savings goals they set.
5. Security & Protection for Funds
Kids lose things. Jackets. Stuffed animals. Their shoes. And yes, they will lose cash given the opportunity.
While losing a debit card isn’t ideal (my daughter lost hers in the house before she even had a chance to activate it!), most banking apps let you turn your debit card off if you misplace it. Giving your child a debit card instead of cash adds a level of security and protection you can’t get with cash.
Plus, as much as we hate to think about it, sometimes, kids steal or bully others for money. If your kid doesn’t carry cash, other children can’t steal or borrow it.
Speaking of borrowing, you should also teach your kids that they don’t have to advertise how much money they have in their bank account and if their friends ask, it’s OK to say it’s not their business.
A few weeks ago, my daughter’s friend’s mom offered to take the kids roller-skating. It was easy to transfer the admission fee plus money for lunch directly from my account to my daughter’s debit card.
As a parent, I love the convenience of knowing my kids can have access to money wherever they are.
Of course, convenience comes with drawbacks. My kids never hesitate to ask me for money while they’re out. I find it’s harder to talk them out of a purchase through text messages or on the phone, when I can’t use the time-tested tactics of distraction and diversion.
You can avoid this issue by setting ground rules for money requests. For example, maybe you’ll pay for clothing but not room decor or books but not toys.
Disadvantages of Opening a Kid’s Bank Account at a Young Age
“With great power comes great responsibility,” as the saying goes. And with great responsibility comes hassles, headaches, and red flags to watch for.
That’s especially true when it comes to money — no matter how much or how little you have. Knowing the drawbacks to opening a bank account for your child at a young age can help you prepare to overcome these issues.
1. Potential Fees
Most banks don’t charge monthly maintenance fees, transaction fees, or overdraft charges. They’ll usually decline purchases on a minor’s account before putting the account into overdraft.
However, your child’s account may be subject to transaction fees for out-of-network ATM fees. You might also have to pay fees for external transfers into your child’s account. Plus, some children’s debit cards, like Greenlight, have steep monthly fees.
Just as you would when you’re opening a bank account for yourself, review the terms and disclosures so you’re aware of any fees. If the bank charges fees, consider whether the fee’s value in the form of high interest rates or added benefits makes it worthwhile.
2. Risk of Identity Theft
Opening a bank account, using a debit card, and managing money online all carry security risks. You must share your child’s name, address, and Social Security number to open their bank account, which puts the responsibility of safeguarding that information in a third party’s hands.
Plus, the existence of these accounts and cards leave your child open to the same threats and credit card scams your information is open to: skimmers (point-of-sale machines that steal your debit card information), phishing scams, or hackers.
To reduce the risk of identity theft, teach your child how to be safe shopping online or in stores. Some tips to impart include:
- When possible, sign for purchases instead of entering their PIN.
- Insert your card into the reader (rather than swiping) or use contactless technology for purchases.
- At ATMs, obscure their PIN from strangers and leave the premises if they feel uncomfortable or think someone is watching.
- Never give anyone their PIN or bank account password (except you, of course!)
- Keep an eye out for fraud alerts and let you know immediately if they spot unusual activity on their account
For more information, see our article on common banking scams and how to avoid them.
3. Lack of Flexibility
Just as some kids’ bank accounts carry fees, some have restrictions on withdrawals or transfers. These may include daily withdrawal limits from ATMs or fees on certain savings account withdrawals. Look for a children’s bank account that waives these fees.
Also, if you think your child may want to make large purchases, look for an account with no daily withdrawal or purchase limits. Otherwise, you may have to devise a workaround like transferring the money into your checking account for withdrawal.
On the other side of that coin, you may want to find an account with no minimum balance requirements. Overall, consider your child’s needs and how much money they’re likely to have when you choose an account.
To find the right account for your child, check out our article on the best bank accounts for kids.
For many kids, having their own bank account and linked debit card gives them a sense of responsibility and pride.
But you have to set ground rules for how you expect them to manage their money. After all, you don’t want them to get the idea that their debit card is linked to a magical Bank of Mom or Dad with no withdrawal limits.
And if your kids spend their allowance too quickly, take advantage of features on some accounts that let you assign chores to help them earn extra spending cash.