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Should I link my bank with my child's?

young-professionalsThere comes a time when children need their own bank accounts -- perhaps when they leave for college or get their first job. Some are willing and able to sever all financial ties, but others may benefit from a little more input from their parents as they start out in life. It's a learning experience for both of you; but parents should consider how much they are prepared to invest in that learning experience.

Young people can make costly financial mistakes. As a parent, there are ways to backstop those mistakes by covering them financially and by providing guidance on how to avoid them. How much to involve yourself personally and financially in your child's banking life is an individual decision, but it's best to understand the options available to you.

Adding a child to a bank account

There are a number of ways to link your bank account with your child's. Here, we explore the benefits and concerns that joint bank accounts and other alternatives present:

  1. Joint bank account
    A joint bank account gives you and your child shared access to information and money in the account. On the plus side, this allows you to monitor your child's banking activity closely. However, it also means your child will have full access to any money you put into the account.

    It's important to keep accurate records and communicate regularly with each other about the account. Costly overdraft fees could be levied if there is a delay in recording a transaction or if both of you access money in the account at roughly the same time without the other's knowledge.

  2. Shared credit card
    If your goal is more to give your child a means to pay expenses than to manage savings, a credit card might be more appropriate than a bank account. You can give a child access to a credit card account by designating the child as an authorized user or by opening a joint account.

    If the child is an authorized user, this means you are still the person solely responsible for paying the bills. A joint account involves shared responsibility, which may help the child establish a credit history and ultimately establish a separate account.

    The risk in either case is that you are giving the child instant access to borrowing money; so if you decide to give a child access to a credit card, make it a card with a very low credit limit.

  3. Overdraft-linking
    Some student checking accounts can be linked to a parent's account for overdraft protection. That way, if the child overdrafts the checking account, the bank simply draws money from the parent's account to cover the overdraft rather than assessing costly overdraft fees.

    While this is convenient, it also means your child is able to drain money from your account and, while not as expensive as overdraft fees, there may also be a charge for transferring money from one account to another.

  4. Authorized access
    If your goal is simply to keep an eye on your child's finances, consider listing yourself as someone who is authorized to access their account. This separates your child's money from your own, yet it allows you to keep an eye on account activity and make deposits and withdrawals as you feel appropriate.

Should I link my bank account with my child's?

The extent to which you link accounts comes down to a trade-off between convenience and risk. The closer the linkage, as with a joint bank account, the greater the convenience because there are fewer restrictions on what either of you can do. However, this also means that your money is exposed to any financial mistakes your child makes.

The best approach may be one that recognizes how your child's needs change over time. When they are still in school, their expenses may be relatively modest and the need for supervision might be great. As time goes on, they may be likely to spend more money; so it may make sense to separate finances more at that time, giving the child both the freedom to manage the account and the full responsibility for doing so.

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