When I was a teenager, opening a checking and savings account was a rite of passage. My 19 and 20-year-old children ditched their traditional bank accounts because they can take care of all their financial needs without them. My sons closed their accounts after they were told they would be charged a fee for using the services of the teller versus doing their banking exclusively with the automated teller machine. According to a recent article by Pacific Standard, many of the national banks are blacklisting customers due to mistakes in their banking history. About 10 million households in the United States go without saving and checking accounts. One third of those people reported not having enough money to have a banking account. Instead of encouraging them to keep checking and savings accounts, I steered my children to discount brokerage firms that also offer online trading and cash services such as checking and debit cards.
Opening with no cash
My son was able to open an account with a discount brokerage firm without having any money. He can have his paycheck automatically deposited into the account, but didn't need any money to get started. He can communicate with account representatives by phone, email and fax. On the downside, there are no bank branches that he can go to and cash a check or make a deposit.
Connecting to a Roth
In addition to having a regular brokerage account, my sons have Roth IRA accounts that are connected to their regular accounts. They can have money automatically moved from their regular accounts to the Roth IRA retirement accounts. Because they are considered "low income," they may be able to receive tax credits for contributing to a retirement account.
Having more choices
Instead of earning next to nothing in terms of interest, the brokerage account gives them more options for actually investing their funds. Although they aren't ready to start investing in individual stocks, they are getting more exposure to the world of investing. Having an online trading account means they have access to investor education and tools. Rather than putting money in savings, they can invest in conservative exchange-traded funds.
Using debit instead of credit
Their brokerage accounts come with debit cards that allow them to withdrawal cash from machines as well as make purchases. Neither one of my young adult children, who are on the cusp of Gen Z, want to put anything on credit. According to a CNN Money article, new research shows there are twice as many young people going without credit cards now compared to before the recession. For young people age 18 to 29, the average credit card debt has decreased from $3,073 to $2,087. Having debit cards takes away the temptation to buy things they could only "afford" with credit cards.
When my children occasionally need banking services that can't be provided by their brokerage accounts, they visit the Wal-Mart Money Center. Although there are fees involved, it doesn't cost them as much as the checking account fees and other bank charges.
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- Banking & Budgeting
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