Can we give minors bank accounts?

By Felix Salmon
August 18, 2010
Sudeep Reddy has a story today about the latest attempts to try to get bank accounts for the unbanked. Such attempts are always well-intentioned, and nearly always doomed: this is a very tough nut to crack.

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Sudeep Reddy has a story today about the latest attempts to try to get bank accounts for the unbanked. Such attempts are always well-intentioned, and nearly always doomed: this is a very tough nut to crack.

But the fact is that the single most important part of banking the unbanked has already been done, with the passage of the Dodd-Frank bill. Pretty soon, overdraft fees are going to be tightly regulated, and much harder to rack up inadvertently. They have historically been the biggest reason why people close their bank accounts, and if they go away that will be a huge help in terms of getting the unbanked back into the system.

There’s also an intriguing idea at the end of the story:

Another novel approach: pushing consumers into bank accounts when they are young, as New York City started doing this year with its summer youth work program. If workers didn’t have a bank account, they could create one on the spot—branded as an “NYC First Account”—in order to get paid through direct deposit.

Of the 9,000 eligible young adults over age 18 offered the account, the city’s Department of Consumer Affairs says, more than 2,000 signed up.

The problem here, of course, is that the “when they are young” bit doesn’t really square with the “over age 18″ bit. Is there any way to relax the legal requirement on parents having to open accounts on behalf of their children?

It’s quite sad, I think, that minors aren’t legally allowed to have their own bank accounts. It would be great to give a bare-bones, no-overdrafts-allowed, no-fees savings account to all schoolkids, just to get them used to banking. They’re allowed to open joint accounts with their parents, and write checks on those, so I’m not sure what the problem would be by giving them an account of their own. But I’m sure the lawyers can think of something.

14 comments so far

I had one when I was young, many, many years ago.

My kids, apparently, can only have one as a UTMA account until they are 14, when they can take control.

Posted by klhoughton | Report as abusive

growing up i remember i had a “passbook” savings account. i had literal passbook that every entry (deposit, withdrawal, interest, balance) would get recorded in by the bank (via a dot-matrix printer). I think there was a novel concept back then – in the early 80s, which was “you don’t spend money you don’t have,” so “overdraft” wasn’t even an option.

are you telling me, Felix, that this is now illegal, that a 10 year old can’t get a SAVINGS account? (not a debit account/checking account/credit card)… that does indeed stink…

or are you telling me that it’s always been illegal and that my parents must have had their name on my account ? (i do not think that’s the case – i’m almost positive it was mine alone)

Posted by KidDynamite | Report as abusive

I grew up in small town midwest — Watseka, Illinois, about 6000 people. In the 1960′s, one of the local banks gave all the 8th graders a passbook savings account with one dollar in it. Every year. The kids would walk over, they’d talk about how banks work, and they’d show us the big electromechanical time and temperature sign controller. They put a big photo in the paper. It was a tradition. Many years later I cancelled the account and got about $1.50.

Posted by Steve12 | Report as abusive

Kids can get interested in anything you teach them… trouble is they get taught to watch TV and fool around on the internet (not judging parents – it is what it is). If we teach them about banking early (like at 8 or 10) then it is something they will handle with ease later on in life hopefully. Either that or it will become like algebra and something they dread terribly *shrugs* I suppose finally it’s the teacher that gets the kid engaged, not the subject.

Posted by CDN_finance | Report as abusive

CDC_finance – I agree with you completely. Kids want money today to buy an iPad and that’s it. The latest gadget has got their fancy….wait a minute, I was the same way 25 years ago

Posted by STORYBURNthere | Report as abusive

I’m pretty sure that your parents were always custodian on your childhood accounts. Certainly that is the policy today.

Deposits can be made by anybody, so that isn’t a problem. Withdrawals require a signature, I believe, though a local bank may be willing to overlook that.

I’ve been investing in stocks since I was 16 or so (not much, just my own earnings). I would visit the broker, my mother would okay the transaction by phone. Worked fine and was a great way to get started.

Posted by TFF | Report as abusive

TFF – I had a Schwab account in my own name before i was 18. i’m POSITIVE of that… no approvals by parents needed.

Posted by KidDynamite | Report as abusive

Did a little research and it sounds like it is up to the bank if they wish to allow a passbook account without a custodian. Checks are a little more problematic because a minor’s signature is not binding, but some banks will shrug and do it anyways.

My kids know that my name is on the account (as UTMA custodian), but they also know that the passbook and the money represented is THEIRS. As long as I don’t disillusion them on that point, I don’t imagine they will care.

Posted by TFF | Report as abusive

I signed up for my first bank account in the first grade at 5 or 6. Every Friday in class we would fill out little envelopes and send they would send it to the local credit union, free of fees. I and most of my friends still have that have that very same account. It is, of course, great marketing.

It’s true that Desjardins is something like a religion in Québec, even though it’s no longer run like the social business it once was. I’m not sure I would let my kids sign up for a BofA account at the same age.

Posted by lemarin | Report as abusive

Felix, now that you make me think of it you should really read up on Desjardins’ history, since you seem to have an interest in the subject. It’s the first and the biggest credit union in North America and makes for something like 40% of Québec’s consumer banking, probably more than any other place in North America.

Posted by lemarin | Report as abusive

I believe that Bank of America encouraged school children to open accounts under A.P. Gianini. 90 years ago.

Hartford Insurance had something similar around insurance though I don’t remember what.

Posted by bidrec | Report as abusive

Not sure what if any legal restrictions there are in the UK, but I’ve had a bank account in my own name since I was about 8, into which I duly put the meagre savings from my allowance. They even gave you a range of piggy banks for hitting savings milestones. I’m pretty sure I didn’t get a cash card until I was about 14, and you’re not allowed a debit card until you’re 16.

Posted by GingerYellow | Report as abusive

I am not aware of any specifi legal restriction preventing minors from opening bank accounts. Under U.S. contract law generally, however, agreements are not enforceable against minors (with certain exceptions, such as contracts for the provision of necessities). It may be bank policy for this reason not to allow minors to open accounts in their own names.

Posted by slowlearner | Report as abusive

If it’s just a savings account with no overdraft and they don’t have cheques or a debit card, why would a bank need to enforce a contract against a depositor who happens to be a minor?

Posted by GingerYellow | Report as abusive
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