After a child understands about coins and bills, it's time to explore other ways to pay for things. As an adult, you know that cash isn't necessarily king, as the saying goes. It's not a good idea to send cash through the mail or to carry a lot of cash when shopping, so other methods of payments should be used. One method is to pay by personal check.
A check isn't only a mark that's made when an assignment has been handed in or a task completed—it's also a piece of paper that represents money. A personal check works like cash. As you know, you give it to someone to whom you owe money. That person can turn your check into cash or use it just like money. A check is like a promise to the person you're giving it to that the amount you've written on the check is backed up by money in a checking account.
A checking account is a type of bank account. Checking accounts aren't investment accounts because you generally don't earn any interest on the money you keep in the account. Depending on the type of checking account, you may have to keep a certain amount of money there (called your balance). The balance generally is figured on a monthly basis and is called a minimum monthly balance. That balance on average during the month can't dip below a set amount (such as $100 or $1,000). If it does, you'll be charged a fee.
A check is proof that you've paid for something. A check is readily accepted as payment by most places and should be used instead of cash when sending payment by mail.
Younger children don't have any need for a checking account. They should know what a checking account is and what it's used for, but they don't need one of their own. However, once a teenager starts to earn money or goes off to college, it may be helpful to have a checking account to pay school telephone bills and other expenses. When your child is in high school, it becomes necessary for her to learn how to write a check, keep tabs on the account, and balance the checkbook.
Writing a Check
If a child has never written a check before, it usually takes only a few minutes to explain how to do so. Just follow these steps while referring to the picture of a check that follows:
- Enter the date in the space provided at the top right of the check. It doesn't matter whether you write “January” or use the number “1” to signify that month.
- On the line that says “Pay to the Order of,” you write the name of the person or company you owe. Your child doesn't have to write “Mr.” or “Mrs.”; just the person's name will do.
- At the end of the line for “Pay to the Order of,” you enter the amount of the check in numerals. Be sure to put a decimal after the dollar amount. It's helpful to write the cents as a fraction as well, the numerator of which is the amount of the cents and the denominator of which is “xx.”
- On the next line, write out in words the amount of dollars in the check and the word “and,” and then enter in numbers the amount of cents. For example, write “Twenty-one and 13 cents.” Again, use the “xx” under the cents amount.
- On the line in the lower-right corner, your child should sign (not print) his name as it appears on the account.
- On the line in the lower-left corner (sometimes labeled “Memo”), your child can—but doesn't have to—enter what the check was for. This serves as a reminder of why you made the payment. If the check is for payment on an account, your child can enter his customer or account number on this line.
Keeping Track of Things
Your teenager should want to know how much is in his account at any given time. This is important so that he doesn't go overboard and write a check for more money that he actually has. The only way to keep track is to record all his checking activities.
When a check is cashed by the person he has given it to, the bank subtracts that amount from his account. A subtraction from the account is also called a debit.
The record of checking activities is made in a check ledger, called a checkbook register. To keep track of the account balance, enter into the check ledger the amount of money that's been put into the account to open it. This is called a deposit (it's also called a credit). Then, every time a check is written, enter information about the check—the date it was written, the check number, who it was written to, and the amount of the check. Subtract this amount from the balance. Every time money is added to the account, this amount is also added to the balance. As your child can see, the balance is constantly changing.
Balancing a Checkbook
Now that your teenager knows how to write checks, she'd better make sure that she reviews her checking account each month. Each month the bank sends a statement showing all checking account activity. Some people simply rely on the bank statement to verify what's in their account. Believe it or not, however, banks make mistakes (and so can your child when she enters in the check ledger deposits she has made or checks she has written). Mistakes and overcharges to the account or other problems can be corrected if she balances the checkbook each month and brings the error to the bank's attention.
It's essential to keep track of how much she's spending, however, so that she doesn't bounce a check. To do this, she must not only be accurate when entering amounts in you're the check ledger, but she also must balance the account each month.
Balancing a checkbook isn't hard to do; it just sounds difficult. Follow these five easy steps (and the figure that follows) to find the correct bank balance.
- Have your teenager write down his closing balance. The closing balance can be found on the front of the bank statement.
- Add any deposits he's made that did not yet appear on his statement (because he made them after the closing date of the statement).
- Add the amounts he wrote down in steps 1 and 2.
- Total up all checks that he has written but that have not yet cleared (because they aren't shown on his statement as having been cashed by the party to whom he wrote the check).
- Subtract the amount in step 4 from the amount in step 3. This is your child's balance.
| Steps ||Amount|
|Step 1:||Closing balance $__________|
|Step 2||Add unreported deposits +__________|
|Step 3:||Total of steps 1 and 2 $__________|
|Step 4:||Add uncleared checks __________|
|Step 5:||Subtract step 4 from step 3 to find the balance $__________|
If your child's numbers don't agree with the bank's numbers, he should double-check his figures. Make sure that he has subtracted any charges for ATM withdrawals or checking account fees, or that he has added any interest to which he's entitled. If, after double-checking the balance, he still think he's right, he should contact the bank and explain the discrepancy. If the bank is wrong, it will adjust the account. But don't expect adjustments if your child waits many months after the month in which the error arose. He should be sure to balance his checkbook each month to catch mistakes immediately.
Capitate Your Kids: Give Your Kids a Financial Head Start
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