Youth banking accounts have grown in popularity, and many financial institutions have conducted extensive research to understand kids’ opinions on banking. However, these studies are frequently inaccurate because they overlook the most important factor in kid’s lives: their parents.
In his latest report, Youth Banking That’s Built for Parents, Dylan Lerner, Senior Digital Banking Analyst at Javelin Strategy & Research, analyzes the way financial institutions approach youth banking products and delivers insights on how banks can build youth products that are designed with parents in mind.
Parental Differences
Every year, Javelin conducts a survey of trends in youth banking, but this year there was spotlight on parents’ financial philosophies.
“Javelin surveyed over 3,000 parents and legal guardians about kids’ financial services and had an overwhelming response,” Lerner said. “With so much going on in their lives and so many financial offerings, parents are turning to their banks for help. They want to rely on their financial institution to make relevant recommendations and give them control to introduce each product or service to their child.”
When parents were asked about the appropriate age to introduce various financial services to their children, responses varied widely. The key takeaway is that every parent and child is different. For this reason, banks and financial institutions should be careful when categorizing youth products solely on age.
“There is a major financial institution that offers a savings account for kids under 16 that is themed to Sesame Street,” Lerner said. “Could you imagine a 14- or 15-year-old who is excited to get their first bank account, then they log in and see Sesame Street? It’s completely missing the mark.”
Crawl, Walk, Run
Many youth offerings include features like chore tracking, allowances, and financial literacy lessons. While parents value these aspects, their highest priority is a platform that allows them to send and receive funds easily. Their next priority is having controls in place to prevent their children from making financial mistakes or falling victim to scams.
Along with security and simplicity, parents want a program that helps ease their child into financial responsibility one step at a time, under supervision, before granting full independent access. For that reason, a graduation model like Javelin’s “crawl, walk, run” program is a better solution.
In this model, a parent might start their child with a savings account and teach them how to manage cash. Next, they could move to a prepaid card, followed by a checking account. Eventually, parents can introduce a secured credit card to their child, which reduces the need for parental supervision. Finally, parents can guide their child in building credit with traditional credit cards.
“The ‘crawl, walk, run’ model is about creating a more relevant framework for parents that recommends age-appropriate products for their children through digital functionality,” Lerner said. “It’s about creating a program where parents can guide their children’s financial lives and futures.”
Owning the Strategy
In addition to offering a “crawl, walk, run” model, banks who intend to build lifetime loyalty through youth banking products will have to adjust their strategy. This is partly because of the increased competition in the youth banking space, which includes traditional banks, neobanks, and fintechs like Greenlight and GoHenry.
Greenlight recently made headlines with its deal with U.S. Bank. While the partnership checks the youth banking segment for the bank, the fintech ultimately holds the deposits and manages engagement. Therefore, U.S. Bank does not own these youth banking relationships.
“It’s well integrated and very convenient as far as parents are concerned,” Lerner said. “But it prompts a question as youths reach adulthood: Will they stick with the financial institution or rely instead on the outsourced youth banking player?”
The Power of Starting Early
Another issue with kids’ banking accounts is that they are often free—so long as the child is under 18. Once the child transitions into adulthood, they typically continue using the same account and access, but with a monthly fee.
“Many financial institutions congratulate youths in reaching adulthood by reinstating monthly fees,” Lerner said. “This widespread strategy feels more like punishment than graduation, and it invites young adults to consider other banks, credit unions, and fintechs.”
However, because of the amount of data that young consumers are inundated with, it can be hard for them to figure out their best financial moves. They want guidance, and banks who want to establish loyalty should position themselves as trusted financial advisors.
“That strategy gives banks the best chance of retaining youth customers as they age into adulthood,” Lerner said. “Then as one thing leads to another, a bank can be there in a few years when that customer is looking for their first auto loan, shopping for a mortgage, and all the way into retirement. That’s the power of starting early.”
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