Banking Basics: Your First Accounts
The foundation of financial literacy starts with a savings account
Why Start Early?
Here's a fact that should get your attention:
Teens who open savings accounts as children are 2x more likely to have savings accounts as adults.
That's not just correlation — it's habit formation. When your child learns to save early, they build neural pathways that make saving feel natural for life.
The Developmental Progression
Banking skills should grow with your child. Here's the typical path:
| Age | Account Type | What They Learn |
|---|---|---|
| 8-12 | Savings account (joint with parent) | Deposits, interest, watching money grow |
| 13-15 | Checking account with debit card | Spending limits, transaction tracking, budgeting |
| 16-17 | Increased autonomy | Bill paying, larger transactions, managing income |
| 18+ | Full individual accounts | Complete financial independence |
Youth Savings Accounts: The First Step
Why a Savings Account First?
Before spending comes saving. A savings account teaches:
- Delayed gratification — money set aside for later
- Compound interest — watching money grow without doing anything
- Goal setting — saving toward something specific
What to Look For
| Feature | Why It Matters |
|---|---|
| No minimum balance | Kids shouldn't be penalized for small amounts |
| No monthly fees | Every dollar should count |
| High APY on small balances | Some accounts pay 3-5% on the first $500-1,000 — visible proof that saving pays |
| Mobile app access | Kids can check their balance anytime |
| Parent controls | You maintain oversight while they learn |
The "Visible Compound Interest" Trick
Many youth savings accounts offer high APY tiers on small balances — like 5% on the first $500.
Why this matters: Your child can literally watch their money grow each month. If they have $500 earning 5%, that's about $2/month in interest. Not life-changing, but visible proof that saving works.
This beats any lecture about compound interest.
Youth Checking Accounts: Learning to Spend
When to Add Checking
Around age 13-15, most kids are ready for a checking account with a debit card. This teaches:
- Transaction tracking — where did the money go?
- Budget limits — the balance is the limit (no overdrafts)
- Real-world practice — paying for things with their own money
What to Look For
| Feature | Why It Matters |
|---|---|
| No overdraft fees | Declined transaction > debt lesson for a 14-year-old |
| Spending alerts | Real-time notifications for every purchase |
| Spending categories | See where money goes (food, entertainment, etc.) |
| Parent visibility | You can see transactions without controlling them |
| No minimum balance | Same as savings — don't penalize small amounts |
The "No Overdraft" Advantage
Traditional banks charge $35 per overdraft. For a teenager learning to manage money, that's a disaster.
Youth accounts with no overdraft fees simply decline transactions when the balance is insufficient. The lesson is the same (you can't spend what you don't have), but without the financial penalty.
Digital Banking Options
Many parents now use digital-first youth banking apps. Benefits:
| Benefit | Traditional Bank | Digital Youth App |
|---|---|---|
| Opening process | Branch visit, paperwork | 5 minutes on phone |
| Parent controls | Limited | Extensive (spending limits, merchant blocks, allowance automation) |
| Learning features | None | Built-in financial education |
| Cost | Often fees | Usually free |
Popular options include Greenlight, GoHenry, and Copper — but do your own research to find what fits your family.
What ISP Teaches
The Banking Basics Challenge
ISP students complete the Banking Basics Challenge:
- Research — Compare at least 3 youth banking options
- Discuss — Talk with parents about which fits your family
- Open — Open a real savings account (with parent)
- Document — Screenshot your first deposit
- Teach — Create a "You Teach" explaining what you learned
Completing the Challenge Earns:
- 💰 First Account Badge on your MyPath profile
- OVR boost in the Financial Skill Tree
- Content for your personal brand portfolio
The Compound Interest Lesson
This is the single most important concept in personal finance:
Compound interest is interest on your interest.
Here's an example your child can understand:
| Year | Starting Balance | Interest (5%) | Ending Balance |
|---|---|---|---|
| 1 | $500 | $25 | $525 |
| 2 | $525 | $26.25 | $551.25 |
| 3 | $551.25 | $27.56 | $578.81 |
| 5 | — | — | $638.14 |
| 10 | — | — | $814.45 |
The money makes money, and then that money makes money.
Starting at 14 vs 24 can double lifetime wealth because of this effect.
Common Mistakes to Avoid
| Mistake | Why It's a Problem | What to Do Instead |
|---|---|---|
| Waiting until 18 | Misses years of habit formation | Start at 8-10 with savings |
| Giving full control too early | Kids need guardrails | Joint accounts with visibility |
| Not discussing money | Stigma creates ignorance | Regular, casual money talks |
| Making it boring | Kids tune out lectures | Make it visual (apps, charts) |
| Shaming mistakes | Fear prevents learning | Treat overdrafts as lessons |
FAQ
Q: What's the right age to open a savings account?
A: As early as the child can understand "this is your money." Many families start around age 8-10. Some banks have no minimum age for custodial accounts.
Q: Should I put the account in my name or my child's name?
A: Most youth accounts are "custodial" — legally owned by the parent but designated for the child. This gives you control while teaching them it's "their" money.
Q: How much should my child save?
A: Any amount is good to start. The habit matters more than the amount. Even $5/week builds the muscle.
Q: What if my child spends everything?
A: That's a learning moment. Help them track where it went and discuss whether those purchases aligned with their goals. Don't bail them out — let the natural consequence teach.
Q: Aren't banks risky?
A: Bank deposits up to $250,000 are FDIC insured — the government guarantees them. Youth savings accounts are extremely safe.
Related Topics
- Investing for Minors → — Next step after savings
- Building Credit Early → — How debit cards relate to credit
- Your First Job → — Where the deposits come from
- Personal Finance Overview →