Your teenager's first paycheck is a cause for celebration. They've found a job, worked hard for their money, and are finally holding the reward in their hands—but what do they do with it now? Most banks are making it difficult to cash third party checks, meaning your teen can't just sign it over to you, and check cashing stores can charge from 1%–3% of the check's value for the privilege of giving your child their own money. Once your teen has a steady job, it's time to get them a checking account. Here are three things to keep in mind.
Look For Free Checking
If your teen is only working part time, their paychecks won't be huge to begin with. Adding checking account fees into the equation can quickly eat away at the money they're earning.
The best free checking accounts, such as with Norwood Bank, are truly free. Make sure the account you choose requires no minimum monthly deposit or minimum balance. The bank shouldn't charge your teen fees for writing checks or using their debit card; they also shouldn't charge for account maintenance.
Read the fine print to ensure your child is getting the best deal. When they don't have much, it's important to hang on to every penny.
Don't Opt In
The Federal Reserve has strict rules about the way banks can process overdraft charges. In order for a bank to approve a transaction that would cause the account balance to go into the negative, they've got to opt in—that is, give the bank permission to overdraft their account and charge fees for the privilege of spending money they don't have.
Since the average overdraft fee is $27, your teen could end up paying far more than they'd planned for their morning donut.
If you're worried about your teen not having enough cash in an emergency situation, consider linking their account to one of your own credit cards. Just make sure they understand that needing the newest video game is not an emergency.
Know Your Own Responsibility
Many banks are okay with letting kids as young as 13 sign up for their very own checking accounts, but that doesn't mean you won't be liable if they run up charges their account can't cover. Your teen's bank will likely require you to co-sign, meaning that if they mess up, you're responsible.
Explain to your teen that it's not just their name on the dotted line; it's yours, too. It's a good idea to go over their checkbook with them periodically and make sure that everything balances out. This is the perfect time to begin a conversation about saving for emergencies or big purchases and discussing their "wants" vs. their "needs."
With their first job, your teen is beginning to assert their financial independence, but it's important to remember that they're not an adult quite yet. They'll need your help to establish a bank account, so make sure they're getting the best (and safest) deal.