Starting the world of banking at a young age is great for practice, after all – you won’t be taught in school how to handle money. Seems like one of those worldly pieces of advice that your mum or nan might tell you – ‘Save now, whilst you can.’ No wiser words would have been spoken! Getting in the habits you’ll need for life is essential, it’ll help you better understand the system by the time you get around to full time work. The only thing you can’t do is borrow money until the age of 18. But how would having a bank account at a younger age help? Read on to find out.
The world of banking and trying to understand the banking system is actually really difficult. Getting a banking account at an earlier age may help bridge the gap in terms of experience and knowledge.
Children banking accounts won’t get charged. You also don’t have to be credit scored in order to get one, in other words, every child is almost guaranteed a banking account (Subject to the banks own underwriting and identification requirements). By having a banking account, they will (Usually) receive:
- A debit card, – which means the child will learn about Card security, PIN numbers and how to pay for something using a card.
- Online banking, which means they’ll understand how to check their balance and how to do electronic transfers, set up standing orders, manage direct debits, keep personal information up to date.
- The benefit of not being charged. For some banks they will allow the child to still go overdrawn by a certain amount. Card payments are, generally speaking, accepted – even if it takes someone overdrawn. It’s not a problem to go overdrawn, if you are a child. They will still have to pay the bank back, which may require a little help from mum or dad, but still, it’s all a learning curve. By the time they hit 18 – the banks don’t tend to be quite so gracious.
The best reason to get an account for your child is that it will normally roll into an adults one the second they hit 18 (It may also roll into a students account – best to check with your bank).
When anyone turns 18 – you will get credit scored to get a banking account. There will always be a bank account available for everyone – regardless of credit score, as regulation dictates that all banks and building societies who offer a banking facilities have to offer what they usually coin a ‘Basic Account’. However, these are – as the name suggest – Basic. It usually doesn’t have an overdraft facility and you usually won’t get a debit card either, meaning you have to deal primarily in cash. A cash card is usually the card of choice for the basic account.
Getting a bank account young also means that kids can practice and get used to banking. Consider this – a child these days are almost fluent on tablets and iPads – Why? Because they’ve practiced, time and time again, over and over, they’ve been brought up with it. Banking practice or practice of any type for any thing will result in you
It’s worth noting at this point that not having an overdraft – doesn’t mean you can’t go overdrawn.. These are two separate things but get confused because they sound very similar. Going overdrawn means going into the minus (If your bank balance says -£0.01 or more – you are overdrawn. This doesn’t mean that you are in your overdraft.
An Overdraft is a pot of money added to your banking account so that if you go overdrawn – you still have this pot of money available for you. this is a form of borrowing (Because you are using the banks money). Children don’t have these as they are not allowed to borrow money.
SO – going back to what I was originally talking about – If you haven’t got a child’s bank account before you are the age 18 – then when you do turn 18, you may find it harder to get one. Based primarily on the fact that when you are an adult you will have to be credit scored and at the tender age of 18 – you’re credit score will be (or likely to be) 0. With your score being this low – you’ll have very little background to go on- and subsequently becomes a bit tricky to get one with debit card and overdraft facility.
So how does having a banking account with a debit card and overdraft help increase your credit rating?
By using the banking account (With a credit facility) – responsibly, dipping into your overdraft and then getting back into debit, not exceeding your arranged overdraft limit and/or by not going overdrawn (over your arranged overdraft), it demonstrates to the bank that you are capable of handling money and using a credit facility. This will help your credit rating, there are also lots of other ways to improve credit rating, check out my blog ‘how to increase your credit score’ to find out more.