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Breaking the Cycle: How Young Adults Can Avoid Thin Checking Accounts

Money management is an essential aspect of every individual’s life, particularly young adults. As they enter the workforce, young adults have to navigate the complexity of managing their finances.

However, the financial habits of millennials and Gen Zers differ significantly from older generations. In this article, we will explore some of the banking habits of millennials and Gen Zers, particularly checking account trends and minimum balance levels across age groups.

Banking Habits of Millennials and Gen Zers

As part of their financial fluency journey, millennials and Gen Zers have to learn how to manage their finances. These age groups are setting new trends in how they do that.

For instance, millennials, born between 1981 and 1996, tend to be more cautious and conservative in their financial habits than their predecessors. On the other hand, Gen Zers, born between 1997 and 2012, are more tech-savvy and innovative in their money management approach.

Checking Account Trends Among Young Adults

Checking accounts are essential financial tools that young adults use to manage their finances. Typically, checking accounts offer a wide range of services, such as online transfer of funds, mobile check deposits, and debit cards.

Unfortunately, most traditional banks and credit unions require a minimum balance to keep an account active. However, banks like Chime and Varo have come up with no-fee, no-minimum-balance checking accounts specifically designed for millennials and Gen Zers.

These banks also offer features that help young adults save money, such as automatic savings transfer, round-up savings, and other cashback rewards.

Minimum Balance in Checking Accounts

The minimum balance level is the least amount of money that a bank requires a client to keep in their checking account to avoid monthly fees and account closure. A high minimum balance level can be restricting, particularly for young adults who are still exploring their financial options.

Additionally, young adults may have limited incomes, making it critical to find a banking option that serves their specific needs. Therefore, we explore the various minimum balance levels across age groups.

Various Minimum Balance Levels Across Age Groups

According to studies, young adults tend to keep lower account balances than their older counterparts. The acceptable minimum balance for young adults varies significantly, reaching a low of $25 and a high of $2000 across various banks.

Credit unions tend to be more flexible and accommodating than traditional banks, accepting lower account balances, or none at all. When considering a bank or credit union account, young adults should research minimum balance requirements, applicable fees, and the additional features that they can access.

Majority of Young Adults Keep $100 or Less in Their Checking Accounts

Young adults have different priorities and money management styles than older individuals. For this reason, many young adults tend to keep lower account balances.

According to a survey by Bankrate, 58 percent of Americans between the ages of 18 and 24 keep a balance below $100 in their checking accounts. This survey report emphasizes that young adults prefer using cash for everyday expenses, making them less dependent on checking accounts.

Also, young adults may be more likely to use non-banking financial solutions like Venmo and PayPal, which are popular among young people for their easy-to-use interface and convenience.

Conclusion

In conclusion, millennials and Gen Zers approach money management differently than older generations, with unique expectations and habits. Checking accounts are essential tools for young adults to manage their finances.

However, traditional banks often require a minimum balance in checking accounts. Thankfully, new banks have emerged, aiming to offer no-fee, no-minimum-balance solutions that cater specifically to young adults.

Young adults also tend to keep lower balances in their checking accounts, with many opting to use cash for everyday expenses or non-banking financial solutions like Venmo and PayPal. When choosing a bank or credit union, it is essential that young adults research the minimum balance requirements, applicable fees, and additional features available to them.

Money management is essential, and the sooner young adults adopt sound financial habits, the more they will benefit in the future. Maintaining a healthy checking account balance is essential for individuals looking to achieve financial security and peace of mind.

Keeping an appropriate balance in one’s checking account helps individuals manage their finances, pay bills on time, and avoid costly overdraft fees. In this article, we will outline guidelines for maintaining a healthy checking account balance, including advice from financial experts and recommended balance levels.

Guidelines for Maintaining A Healthy Checking Account Balance

There are several things that individuals can do to maintain a healthy balance in their checking accounts, including:

1. Create a Budget: Creating a budget is a great way to manage your expenses and track your spending.

A budget helps you identify areas where you can cut back on expenses and increase your savings. 2.

Use Automatic Savings: Many banks offer services that help their customers save money automatically, such as automatic transfers to a savings account or a feature to round up your transactions and put the extra change into a savings account. 3.

Avoid Overdraft Fees: Overdraft fees can quickly drain your account balance and lead to additional fees for returned checks or declined payments. Set up alerts to notify you when your account balance is low and avoid overspending.

4. Use your Debit Card Wisely: Your debit card gives you quick access to your funds, but it’s important to use it wisely.

Avoid using your debit card for large purchases, and always keep receipts to ensure your transactions are accurate. 5.

Choose A Bank That Fits Your Needs: Not all banks are created equal. When choosing a bank, consider factors such as the location of branches, accessibility of online banking, and options for savings and investment accounts.

Advice from Financial Experts on Recommended Balance

Financial advisors and experts often recommend having a healthy balance in one’s checking account. The recommended balance for a checking account varies depending on factors such as income level and expenses, but some experts suggest saving enough money to cover bills and expenses for at least two months.

This way, individuals have a safety net in case of unexpected expenses like a medical emergency or job loss.

Recommended Balance To Cover Bills and Expenses

One way to determine the recommended account balance is by taking a closer look at one’s monthly bills and expenses. Experts recommend having enough money saved to cover bills and expenses for at least two months.

This provides a more significant safety net, in case of unexpected expenses. Individuals can determine their recommended balance by:

1.

Listing Their Monthly Bills and Expenses: Make a list of all your monthly bills and expenses, including rent/mortgage, utilities, health insurance, car payments, and any other bills you may have. 2.

Adding Up Monthly Bills and Expenses: Add up your monthly bills and expenses and determine how much you need to have in your checking account to cover those expenses. 3.

Multiplying Your Total Monthly Bills and Expenses by Two: Experts recommend having at least two months of expenses saved up in case of emergency expenses or job loss.

Risks of Not Having a Checking Account

Having a checking account is essential for managing one’s finances and gaining access to a range of financial services such as direct deposit, bill payment, and online banking. Unfortunately, not having a checking account can lead to a range of negative consequences, including:

1.

Limited access to Financial Services: Without a checking account, individuals may have limited access to financial services such as loans, investment accounts, and other financial products. 2.

Higher Fees for Financial Transactions: Without a checking account, individuals may have to rely on expensive alternatives such as check-cashing services, prepaid cards, or money orders, which can eat into their finances. 3.

Safety Risks: Without a checking account, individuals may have to carry large amounts of cash, making them more vulnerable to theft.

Final Thoughts

Maintaining a healthy checking account balance is essential for achieving financial stability and peace of mind. By creating a budget, automating savings, avoiding overdraft fees, using debit cards wisely, and choosing the right bank, individuals can keep their checking accounts healthy and secure.

For individuals who don’t have a checking account, they are encouraged to explore the many benefits of having one, including convenient access to financial services, reduced fees for transactions, and increased safety and security. Young adults often have thin checking accounts, meaning they have little money saved in their accounts.

This can be attributed to several factors, including a lack of financial literacy and skills and the increase in the use of neobanks and investment apps. While emerging banking technologies offer convenience and accessibility, caution is necessary as they may have limitations compared to traditional banks.

It is essential for young adults to prioritize financial literacy and develop a sound financial plan.

Lack of Financial Literacy and Skills

One reason why young adults have thin checking accounts is a lack of financial literacy and skills. Many young individuals do not receive formal financial education, leading to inadequate knowledge about managing finances.

According to the Financial Industry Regulatory Authority (FINRA), only 16.4% of young adults answered correctly to a survey regarding financial literacy. This can lead to poor decision-making, such as overspending or not prioritizing savings, which may result in a thin checking account.

Increase in Neobanks and Investment Apps

There has been a significant increase in the number of neobanks and investment apps, offering convenience and accessibility to young adults. Neobanks are online financial institutions that offer customers a range of banking services, such as checking and savings accounts, with no physical branches.

Investment apps offer the ability to invest in the stock market and other investments from one’s mobile phone. While these technologies offer convenience, some young adults may prioritize their use of these applications and neglect other aspects of their finances, leading to thin checking accounts.

Caution for Young Adults Using Emerging Banking Technologies

While emerging banking technologies offer convenience, young adults need to be cautious of their limitations compared to traditional banks. One of the significant limitations of neobanks is the lack of physical branches, which may make it challenging to deposit cash or resolve issues with an account.

Additionally, many neobanks are not insured by the Federal Deposit Insurance Corporation (FDIC), which limits the protection on deposits. Investment apps carry the risk of loss of investment if not used properly.

Despite promising investment yields, young adults must be knowledgeable enough to understand the risks of investing in the stock market and other investments through these apps.

Importance of Prioritizing Financial Literacy and Developing a Sound Financial Plan

Young adults need to prioritize financial literacy and develop a sound financial plan to achieve financial security and avoid having thin checking accounts. Financial literacy education can go a long way in helping young individuals make informed decisions about their finances, such as prioritizing savings and avoiding unnecessary expenses.

Developing a sound financial plan that includes setting goals, budgeting, saving, and investing is essential for healthy finances. Young adults can also benefit from seeking advice from financial experts and mentors who can guide them in their financial journey.

Final Thoughts

Young adults often have thin checking accounts, which can be attributed to a lack of financial literacy and skills, as well as the increased use of neobanks and investment apps. While emerging banking technologies offer convenience and accessibility, young adults must be cautious about the limitations compared to traditional banks.

Young adults must prioritize financial literacy and develop sound financial plans to manage their finances effectively. By adopting healthy financial habits, young individuals can achieve a more secure financial future.

In conclusion, young adults have thin checking accounts for various reasons. A lack of financial literacy and skills, as well as the increase in neobanks and investment apps, have contributed to this issue.

Emerging banking technologies offer convenience, but young adults must be cautious of their limitations compared to traditional banks. It is essential to prioritize financial literacy and develop sound financial plans that include budgeting, saving, and investing to achieve financial security.

Seeking advice from financial experts and mentors can also be beneficial. By adopting healthy financial habits, young individuals can avoid having thin checking accounts and achieve a secure financial future.

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