Banks Take Advantage of Children

Marketing to America’s youth is big business. Advertisers recognize that younger consumers play a key roll in directing buying decisions and are more flexible about trying new brands. By contrast, more experienced consumers seem to get stuck in their ways and are less likely to try a new brand. That’s why it always seems like network television is geared toward a very young audience.  Advertisers want a young demographic and networks try to deliver.

Winning a young customer, for most companies, should result in a lifelong relationship. Most industries understand this dynamic, but based on my recent experience with the banking industry, it seems like they missed this lesson and could care less about attracting new young customers.

When I was growing up, I was taught that saving money was my responsibility and that the bank was an important part of my personal finance education.

Maybe I was one of the few had this curriculum growing up in the 60s.  Today the average U.S. household saves only about 3.1% of its income.  That puts us last among major industrialized economies.  By comparison, Japan’s average savings rate is a whopping 11.4% (savings rates measured between 1996 and 2001). The banking institutions in this country for our good and theirs should step up to help educate our children about the importance of savings and financial responsibility.

While economists will argue the importance of the personal savings rate, there is little argument that everyone needs to learn how to save money and spend within one’s means.

In our house, with two children 8 and 10 years old, saving money is an important lesson and I have treated our trips to the bank with a bit of reverence.  When my boys were young we set up a savings account at a local bank.  The boys have received contributions from family members and their accounts finally got to a point where it made sense to set up college savings account.  While my boys have frequently made trips to deposit money into their account, today was a lesson in making a withdrawal. As my kids listened (those tall counters make it difficult for short people to see) they heard the following conversation. 

Dad: I would like to withdraw money out of both of these accounts.

Bank: No problem. You understand, of course, that there is an $8 charge for each cashier’s check.

Dad: You are charging my kids to withdraw their money? (I didn’t remember this lesson growing up) $8 is more than you’ve paid them in interest over the past two years!

Bank: If your children had more money saved with us then, of course, we would waive the charge, but…

Dad: I certainly don’t remember the bank disclosing when I opened these accounts that there would be a charge to withdraw the money. This is what Mutual Funds do, but at least they disclose the concept of a “back-end load” at the time you open the account.

Bank: Sorry sir, you are misunderstanding. There’s not a charge to withdraw your money, just a charge for a cashier’s check.

Dad: Well, then you tell me how I can withdraw their money without paying a fee?

Bank: We could pay them in cash.

[There’s a great lesson to teach the kids. Encourage them to walk around town with thousands of dollars stuffed in their pockets, when they seem to lose things their lunch box and sweatshirt every other day!]

Dad: Well that doesn’t make me feel very comfortable, but if that’s the only way I guess that’s all right.

Bank: Unfortunately sir we don’t keep that much cash in the bank and we’ll have to order it.

Dad: Isn’t there a way to withdraw my money today?

Bank: No problem. You could sign up for our electronic bill pay service.  If you put more money in the bank that service is free and you could write yourself a check.

Dad: Are you seeing the problem with that suggestion?

[He did.]

Bank: Maybe, we could issue you some temporary checks you could use for this account.

Dad: Great!  That’s perfect.  Please issue those checks.

[Teller leaves to check with a supervisor]

Bank: Unfortunately sir we can’t issue temporary checks for this type of account.

Dad: What type of account do I have?

Bank: Unfortunately sir, this is a savings account specifically designed for minors so we don’t allow the ability to write checks.

A glance down at my children and I could tell by their faces, that any hopes of teaching them a big lesson about the importance of savings and banking had been dashed.

Now to be fair the bank teller and his supervisor were embarrassed at the options they had to work with and ultimately they wrote us a cashier’s check and waived the charge (but only this one time!). They explained that as their parent, if I switched my banking relationship then they could “attach” my children’s accounts to my accounts and thus waive most of these fees.  No, I think I’ll keep my current banking relationship, since I’m stuck in my ways and simply switch my kids to my bank.

The banking industry needs to use some of its own math to analyze not just the present value of a young customer but its future value as well. Banks have both a responsibility and an opportunity to help teach young people about personal finance, but first they need to look at how they’ve designed their system through the eyes of a young saver.

 © 2004 Greg Harris