When the topic of financial literacy pops up, we often think of learning about the ideas of principal, earning interest, and managing money. Those are good lessons to learn and skills to have. Whether taught in school or just picked up along the way, those skills form the basis for our ability to manage money as an adult.

Often the question revolves around the appropriate age to open a kid's bank account, but that depends more on the child than the policies of the bank or credit union. The key to a youth savings account or checking account isn't just about having money. It's about learning how to save and spend it.

When you think your child is ready to have their own bank account, they likely ought to have an understanding of why they should have a bank account. Taking care of it throughout their childhood will help them understand how to use a savings account or checking account responsibly.

Your child's first bank account

You may be surprised to learn that you can open a savings account for your child as soon as they are born. They aren't going to be making any withdrawals until they have a source of money incoming, but it’s a great place to put gifts like birthday money from their grandparents. If you are depositing money in their account, especially when they are too young to understand the concepts of money, it's still mostly your account.

By law, children must have an adult's name on their account until they reach the age of 18, so at best, it's a joint account. More often, these are known as “custodial accounts” with a legal guardian having access. But even if you are the only one depositing money, the goal of having a child's account is likely not to make them independently wealthy by the time they are legal adults. As a parent, your first goal is to help them learn how to save money.

A child's first account is often a savings account. Why? Well, in addition to learning how to save money, children rarely have a legitimate need to spend it, (assuming buying games and tons of candy isn’t “legitimate” in your view) — plus, as you know, spending is the primary function of a checking account. That’s why a kid’s savings account is a good starting point for learning how to handle money.

Get kids interested in saving money

If you open a savings account and you are the only one making deposits, it might be more challenging for a child to learn where that money goes. As adults, we simply move money using our online banking or mobile app and money gets added to an account. If your name is on the child's account (as opposed to an account opened by Grandpa, or the favorite aunt), you can easily transfer money using your mobile banking.

That's easy, yes, and eventually, your kids will get the idea that money can be moved electronically, but that may not help them learn about the purpose of banking. By teaching your kids that a community bank or credit union holds onto and protects their money, they will better understand the value of putting the money into an account rather than a piggy bank. (We'll get to earning interest once they understand the basics.)

When they are young and go with you to the bank or credit union, they’ll watch you hand the money over to a teller and see that it's no longer immediately accessible. The earliest financial education kids can learn is that money is limited and important to buy the items we want and need in life. The second-best lesson is helping them understand that banks and credit unions exist to take care of their money until they are ready to buy those items.

Engaging kids in the banking process will help them understand where the money goes. Let them hand the money over to the teller. Allow them to see the dollar amount on their receipt. For young kids, these tangible interactions make the process easier to grasp.

Let kids have some money, too

In addition to learning where the money is deposited, it's also helpful to let them see how to come back and withdraw money. Therefore, another great step in the financial education process is to let kids experience withdrawing money themselves.

At first, this process won't be for the purpose of spending money, but instead to let them know their money is always there and that it is safe.

One way to help a child understand this idea is to allow them to keep a small amount of money separate from each deposit. For example, when depositing $5, allow the child to receive fifty cents back. This can be added to the following deposit or saved in a jar at the house with other loose change. The idea is to help young children understand where their money is more readily accessible to them.

After each visit, be sure to let them see what their account balance is. The advantage of any deposit account is to grow your money in the account. Seeing that balance increase with each visit to the branch will help them understand the benefit of depositing money into a savings account.

Show kids how to spend money

Again, as you know, the idea of saving money is to watch it increase over time. But why is that important? As adults, we may be planning for retirement or building up an emergency fund, but it’s unlikely either of those buckets of savings is on your child's radar screen. Even saving for college might be a bit over their heads at this point.

Regardless, saving up for a specific purchase helps a child learn that patiently collecting their money in a savings account over time will help them reach a goal. Develop a plan for a small purchase — say around $5 to $10. If they are making small deposits, they may think it is okay just to make the purchase and skip the bank. Consider instead letting them make the purchase once they reach a larger savings goal, like $50 or $100.

This will teach them the benefits of goal setting, as well as the value of not spending money as soon as they have it. Learning to practice patience and restraint can help them understand that it is a good idea to plan purchases and to always keep a safety net in their account — just in case something unexpected pops up.

Bank online together

With a child's custodial account as well as your own, you likely have convenient visibility to transactions using online banking. As they see you use your debit card at stores, you can show them what those transactions look like in your own account, so they get a hang of how it works a bit faster.

Once your child understands the concept of depositing money, you can also show them how money can be moved from one account to another. After a visit to the local branch, let them see their new account balance online. Use your mobile banking app to move a few dollars to their account.

When reviewing their accounts, be sure to let them see any interest they are earning, too. Even if they are not quite ready to determine how the interest rate is calculated or what annual percentage yield (APY) means, seeing their balance grow should teach them the benefit of keeping the account with a community financial institution rather than at home in their piggy bank.

Being digital natives, it will be easy for them to make sense of the technology but teaching financial literacy to kids is really about helping them monitor their accounts and see the progress they are making.

Your child's second bank account

Once your child understands the concepts of saving and accessing their money in a savings account, it will be easier to prepare them for their first checking account.

For some, a teen checking account might also be their first opportunity to experience an account opening. Whether opening an account in person or opening a checking account online, allow your teenager to take the lead.

The importance of depositing money

How they will fund an account may be one of the more important topics to discuss with your teenager before actually opening the checking account. For money to be spent, they will need money coming in. Whether babysitting, mowing lawns, or earning an allowance, having a steady source of funds will be necessary to keep their account on track.

With mobile deposit, they can receive payments that they can deposit themselves. Once they get their first job, they will be able to set up direct deposits. Be sure to take advantage of the opportunity to encourage them to always direct some of that deposited money to their savings account automatically.

Encourage your child to check their account balances and activity regularly. You can pass along to them that one in three adults are said to check their account daily allowing them to see it is common practice.

Learning how to spend money

By the time your child opens their first checking account, they will probably already have figured out how to spend your money, but they'll soon see that managing their own money will be a different process.

Many teenagers may have already used a debit card with pre-set limits or even set up their own digital wallet (funded by you, of course). However, having their own debit card without the skills to track and recall every purchase can lead to financial challenges. Setting up alerts and notifications can help them keep tabs on their spending and incoming deposits.

You’ll need to also consider if you want your child to have the ability to write checks in addition to using a debit card. A good first step might be to request a few pre-printed checks at the branch to give your teenager the ability to learn how to write a paper check. Follow the process that the check takes as it makes its way through their account.

Since checks can take up to a week or more to clear an account, this might be the best step before introducing bill pay and more advanced banking services.

Understanding bank fees

Most custodial accounts don't charge a monthly service fee or require a minimum balance, but once your child turns 18, such fees become more likely. As adults, you proactively avoid bank fees and monitor and maintain your account to dodge an additional usage monthly fee.

One fee your teenager won't be able to avoid is an ATM fee from an out-of-network ATM, also known as a surcharge. Your bank may wave its own fees for using someone else's ATM and may even refund those outside surcharges. It's important for young people to know where and why banks charge fees so they have the knowledge when their account no longer gets the fee-free benefits associated with a youth account.

Debit card usage can also include account holds and even minimum purchase fees by the merchant. Financial literacy includes knowing where the pitfalls may be hiding and how to dodge them like a teenage ninja.

Your child's next bank account

When your child reaches the age of 18 (don't get weepy just yet), their bank or credit union will help them transition from a youth account to a full-fledged adult account holder, which could come with monthly account fees and/or minimum balance penalties. If you do find new fees stepping up to the plate, you might encourage your teen to shop around.

Nowadays there are some institutions that offer free accounts (meaning you don’t have to pay for having one) as well as those that don’t require a minimum balance. Regardless, those first accounts your child held should help prepare them for managing their money like a full-fledged adult.

Securing that adult account doesn't mean their financial literacy lessons from Mom and Dad are all in the past. There will continue to be plenty of ways you can help your children learn about fiscal maturity — such as auto and education loans, and other types of savings accounts such as certificates of deposits (CDs) and money market options.

Choosing a bank or credit union

At some point, your child may want to open an account at a financial institution of their own. Maybe they are planning to open a joint savings account with a future spouse (again, don't get weepy about this yet, either). Helping them see the advantages of choosing a rewarding checking account may help them evaluate a bank or credit union in the future.

They will likely understand the difference between exceptional customer service and a chatbot on their own but helping them to make choices that support their community’s economy is a valuable lesson that will have them appreciate and take pride in the importance of shopping, dining, and banking locally.

Establishing credit

Around the time teens begin adulting, they may start to get inundated with credit card offers. They may even choose to take out a loan to help cover the costs of college or trade school. While these financial products can help them advance their spending power, they can also create financial challenges if they are not familiar with the ways borrowing can impact their budget and their credit. Having established and maintained checking and savings accounts early on will give them a significant advantage.

Encourage kids to develop short-term and long-term financial wellness plans. Building on the skills they've already developed for saving can help them weather those inevitable unexpected expenses that come with growing up.

When it comes time to get their first car on their own, you will have helped them prepare for allocating money each month for a car payment. You'll have also guided them in managing and understanding their credit. Even more, you’ll have positioned your own bank account to not be strained by your growing child’s purchases.

Understanding wealth management

A great lesson in financial literacy that many people never learn is the value of seeking advice. If you've helped your child along the way, you've already helped them discover how beneficial an expert voice can be.

Their first job might include with a 401k. They may get a great paying job right out of college and (wisely) wonder how to start saving for retirement immediately. Understanding the possibilities of wealth management may sound like a lot for you to tackle if you are still considering when to open that first savings account. Don't panic. There is still plenty of time and expert advice.

Let your children see you asking questions and looking for solutions. Just knowing that you may not have all the answers (shocker!) is just another way you are helping your kids develop savviness and financial independence.

Prepared for every bank account

By teaching your kids what they will need to know about saving money for both little rewards and big purchases, you’re helping them grow. Walking them through the ways to manage their first bank account as you give them their initial glimpses into protecting their fiscal future.

So, keep on making smart choices, earning rewards on your accounts, and practicing your own financial wellness knowing that you’re showing your child to be proud of their money by your example.