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Likewise, parents who exercise joint control over bank accounts for teenagers must be careful to keep them in good standing. Overdrafts, bounced checks and other similar issues can seriously impact the credit scores of joint account-holders and quickly turn a supposedly educational venture into a credit nightmare.
Banking For Teenagers Poses Risks to Banks
While most banks intentionally insulate themselves from the risks associated with bank accounts for young people, they are not completely immune. As they move across the country in pursuit of knowledge or employment, teenagers may change banks with some regularity. They also tend to overdraft far more frequently than their older peers. What’s more, teenage bank account holders who become borrowers as they enter their 20s typically default on their debt obligations at a higher rate than more mature borrowers.
Bank Accounts for Teenagers Safer Than Credit Cards
Nevertheless, bank accounts for teenagers are relatively safe in comparison to some alternative methods of establishing credit and promoting financial know-how. For instance, all major credit card issuers as well as many stores and brands target teenage consumers with low-limit credit cards.
These cards come with many caveats. Brand-specific cards may encourage unsupervised teens to embark on wild shopping sprees that have lasting financial consequences. Even cards that aren’t tied to a trendy store or online retailer may promote overspending.
What’s more, the spending limits on most of these cards are so low that a couple of big purchases may push the cardholder’s debt-to-credit ratio into unhealthy levels. Even a relatively prudent teenager may have trouble limiting their monthly charges to less than 10 percent a card’s spending limit.
The debit cards associated with teenager-friendly bank accounts accomplish the same educational goals as standard-issue credit cards, and also have fewer negative consequences to quell the nerves of anxious parents.
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