Erica Sandberg is a prominent personal finance authority and author of “Expecting Money: The Essential Financial Plan for New and Growing Families.” She writes “Opening Credits,” a weekly reader Q&A column about issues for people who are new to credit, for CreditCards.com.
Dear Opening Credits,
I am a 14-year-old pupil and want to open a savings account. I am selling sweets at school, and I don’t want my parents to know about my savings. Is it possible for me to open a savings account as a minor? — Nomfundo
*Loud, robust clapping*
Your interest in saving money is to be commended! It gets you into a habit of treating every penny you earn respectfully, increasing the odds that you’ll use credit cards and other financial tools appropriately when you eventually get them (which you may need to do if you want to become an international candy mogul.) Socking away cash on a regular basis is a fantastic habit to get into at any age, but the earlier you begin, the more ingrained this practice will be.
In fact, by opening a savings account and using it correctly, you are also doing something quite fabulous: You’re establishing a long-term, positive relationship with that financial institution. Someday, for example, you may want a credit card of your very own, and the bank or credit union you’ve been working with from an early age would be an ideal place to go.
You say that you would like to open a savings account without your parent’s knowledge, but you don’t explain why. Though I admit that the idea of a secret stash built from clandestine candy sales is appealing in its own way, openness and honesty are even better. As with financial responsibility, the earlier you acquire the habit, the better. Unless you’ve got a compelling reason to hide your earnings, (are you afraid they’ll raid your stockpile? Will they not approve of your budding business acumen?), it’s best to be forthright about your financial plans.
Talk to your parents about your desire to set cash aside in a financial institution. Explain what you want to accomplish and why you would like to have an account in your name. Hear them out. Most mothers and fathers would be overjoyed to have a child who wanted to save money and would support such a responsible wish by taking you straight to their bank and giving you their blessing in the form of a signature. Many banks make it easy on both parents and kids by offering minors accounts with low or no balance requirements. Some even have special teller windows so you can make your own deposits.
However, Nomfundo, if you have good reason for keeping your plan on the q.t., be aware that opening a bank account without the assistance of a parent or guardian will be tough. According the American Bankers Association Education Foundation, in most states, a person under the age of 18 is not deemed to have the legal capacity to enter into a contract. Savings accounts are considered such a legal agreement, as are credit cards and other such financial instruments. With bank accounts come fees, and unless you are an adult in the eyes of the law, the bank can’t turn to you for payment. That’s also the reasoning behind needing an adult to co-sign on a loan or line of credit for you.
This doesn’t mean you can’t or shouldn’t pursue your wealth-building dreams, though. You can still do so without adult supervision and even without the formality of a financial institution. Find a protected place in your home — whether it’s a sock drawer, a piggy bank in the back of your closet or, ideally, a lockable mini safe — and start to set a portion of your earnings aside on a regular basis. Make it easy by establishing a schedule. Decide on a set amount you’d like to put away, such as $15 every Friday, or save a certain percentage of your pay, no matter how much you make. For example, you could divide your week’s earnings by half, spending one even portion and saving the other.
If a savings account appeals to you because of what your deposits could earn, don’t worry about that too much. Even the best interest rates these accounts offer are very low, usually between one and two percent. Of course, banks do offer security not found in your home. Snooping brothers and sisters can’t raid your stockpile, and deposits of up to $250,000 are protected in case the bank goes out of business. (You’d need to sell a lot of candy to exceed that sum.) For these reasons, a bank account will be essential one day, especially when you amass enough to invest and can really profit from your reserves.
Whether you choose to save with the help and goodwill of your parents or do it your own, your main concern at this point should be establishing a superb savings routine. You’ll be amazed by how quickly even a little set aside each week can accumulate. Indeed, watching money that you worked hard for grow is an invaluable gift to yourself. More, you’re developing habits that, in a few years, may help you avoid becoming one of the many young adults drowning in debt from credit cards and other financial tools. (And their numbers are growing: According to a Sallie Mae study of undergrads’ credit card usage, in the spring of 2008, only 15 percent of college freshmen had a zero balance on their credit cards, and the median debt freshmen carried on their cards was $939. Four years earlier, nearly 70 percent of freshman had a zero balance on their credit card and the median debt was just $373.)
You certainly have my approval and applause.
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