Bank Accounts for Minors: A Pathway to Financial Inclusion or a Dead-End?

Abstract

Abstract This study estimates the effects of state laws that allow access to independently owned bank accounts without a custodian. In states where minors can own accounts, youth aged 16 through 19 are more likely to be banked, although by age 24 those young adults are banked at similar rates to teens who grew up in states that do not allow minors to own accounts independently. However, young adults who had access to independently owned accounts at teens are then more likely to use high-cost non-bank financial services, particularly check-cashing services. Young adults who had access to non-custodial accounts as teens also show lower credit scores and more loan delinquencies at ages 21 through 24. While state banking policies can increase financial inclusion for teenagers, minors with bank accounts face frictions transitioning to adult accounts. Since minor accounts require opening a new bank account, this transition process appears to drive young people with non-custodial minor-owned accounts to use more alternative, non-bank financial services. JEL Codes: D14, D18, G18, G21, G28