Whether you’ve just gotten married or have a college-bound child, a joint checking account can help you manage your shared finances. It can also spur healthy conversations about budgeting and spending habits. However, things can quickly sour if you aren’t on the same page with your financial partner, especially if he or she spends extravagantly while you aren’t quite as quick to whip out your wallet.
Here’s a closer look at some of the pros and cons of joint checking accounts, and three scenarios in which opening one would make sense.
After tying the knot
After the honeymoon, newlyweds returning to Earth may start focusing on shared expenses. Using funds from a joint account to pay household bills, rent and other shared expenses can add a much-needed degree of financial transparency to a marriage. Sometimes, though, that openness can lead to unexpected trouble.
“Because each person has unfettered access to the account, one person could fill the account while the other drains it,” says Andy Tilp, a certified financial planner and the founder and president of Trillium Valley Financial Planning in Portland, Oregon.
To avoid money-related arguments, some experts recommend retaining individual bank accounts when couples become partners.
“I tell my clients to set up three bank accounts – yours, mine and ours,” says Lisa C. Decker, a certified divorce financial analyst and the founder and chief executive of Divorce Money Matters in Kennesaw, Georgia. “This way, each spouse can contribute to the joint account for household bills and then put money into their own accounts to be spent on what they want without asking or getting approval from the other.”
Keeping an eye on your child’s finances
A joint checking account can be a great way to monitor your teenagers’ finances once they head off to college. While it’s best to avoid Big Brother-type surveillance, a shared account also ensures that your newly matriculated undergrad doesn’t have to navigate the complex world of personal finance completely alone.
“A joint account can help the student avoid a costly mistake like overdrawing,” says Curt Sheldon, a certified financial planner and the president of C.L. Sheldon and Co. in Alexandria, Virginia. “It also allows the parent to see where their money is being spent.”
A shared account can also simplify adding funds.
“If the account is at the same institution as the parent’s primary checking account, then it is quick and easy to add funds,” Tilp says. “This can be done online on an as-needed basis, or as a regular payment.”
If you want your child to learn financial independence, though, avoid becoming his or her personal bank. Make clear that there’s a limited amount available and you won’t refill the account every time funds run low. This will help your teen learn the importance of financial restraint and living within a budget.
Helping out a parent
Keeping track of bills and credit card statements can become difficult as people grow older. Joint checking accounts can make it easier for adult children to help their parents manage their finances. As with any shared account, establishing trust is important.
“The aging parent must be able to trust their son or daughter,” says Larry McClanahan, a certified financial planner in Portland. “If the adult child is a spendthrift, those joint checking assets can legally be spent down to nothing.”
Opening a joint account
Once you’ve decided that a joint checking account is right for you, opening one is fairly straightforward. You’ll need the same information that’s required when opening an individual account, including Social Security numbers and addresses for both parties.
Before taking this leap, be sure to engage in a frank conversation about spending expectations and monthly budgets. Once the account is established, maintain a regular dialogue about finances to avoid headaches.
Check and cash image via Shutterstock.
The post With Trust, Joint Checking Accounts Can Make Family Finances Easier appeared first on NerdWallet Credit Card Blog.
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