Saving for children: With £4.5bn in their pockets, iPod kids flash the cash

In the final part of our guide to young people's finances, we consider the best accounts for teenagers

With more disposable cash than their parents ever dreamt of, today's teens epitomise our "spend now, save later" culture.

With more disposable cash than their parents ever dreamt of, today's teens epitomise our "spend now, save later" culture.

As a group, they carry real financial clout, earning a staggering £4.5bn a year from paper rounds, Saturday jobs and baby-sitting to pay for iPods, mobiles and other consumables.

Unsurprisingly, in a study from Royal Bank of Scotland (RBS) more than a third of teenagers said they preferred to spend what they earnt rather than save it. Yet, despite this, teenagers do appear to be clued up about the dangers of debt.

Two-thirds understand that it is wise to steer clear of owing money, according to research from independent financial adviser support company Sesame.

Of course, what your typical teenager might say and then go and do may be quite different, but it's to be hoped that this early appreciation of the potential danger of credit will translate into a responsible approach to their finances in later life. Their parents may not be the best teachers: personal debt levels among adult Britons currently stand at £1 trillion.

One way that teenagers can better appreciate the value of money is by earning their own. Developing good financial habits early on in life will also pay off when it comes to starting full-time work or going to university or college.

Organisations such as the Personal Finance Education Group, which campaigns for improved financial education in the classroom, are working to change attitudes by giving pensions, savings and managing household finances a bigger role on the school curriculum.

But you can do your bit, too, to help your teenage offspring get into the savings habit - by encouraging them to open their own account.

"It's very easy just to buy things for your children when they ask," says Anna Sofat from IFA Destini Fiona Price. "But by opening an account which they control, they can start to understand what is theirs.

"This will help them learn that once money has been spent, they have to save to build the balance up again."

Accounts vary widely between providers, so don't open one for a child at your own bank or building society without checking what is available elsewhere. Most high-street lenders operate some form of "youth account" giving customers of 16 or over regular balance statements, a chequebook and a cash card.

It is illegal for a bank or building society to offer youngsters an overdraft until they are 18 but they may be offered a debit card such as Electron or Solo, which can be used only if there are sufficient funds in the account. Not all shops or restaurants accept these cards, however, so check before trying to buy.

As for interest, many top-paying accounts for teen savings are phone or internet-based, and that may not be appropriate for a young person's money, says Stuart Glendinning from the price comparison website Moneysupermarket.com.

"The average teenager is going to want a branch nearby so they can go [and pay in and take out money]," he says. "This could be more important than the rate of interest the account pays."

Even so, there are some competitive rates available with branch-based accounts. Nationwide Smart pays 5.01 per cent on £1 and offers a cash card once the holder is 12 years old. Halifax's Save4It pays a similarly high interest rate - 5.05 per cent - but has no cash card until the account holder is at least 16.

Elsewhere, Barclays Plus pays 4.25 per cent on balances of more than £50 and offers a Visa Electron card - if parental consent is given.

There's a free electronic personal organiser for young customers opening HSBC's Livecash account, which pays 4.17 per cent on balances of £1. For those aged 13 and over, the account comes with a Solo cash card.

Holly Boston, 16, from Daventry, has a Smart account with Nationwide, opened for her by her parents in 1995. She pays in money earned from her Saturday job in a cosmetics shop.

"I try to save regularly for the things I want," she says. "The high interest rate means my savings grow quite quickly."

While Holly could have a cash card and a chequebook with this account, she has opted to go on making transactions at her local branch with a passbook.

"It saves me from spending too much money," she adds.

Instead of a young person's saver account, Mr Glendinning says a normal high-street easy-access current account tailored for teenagers could be the best way of helping them get used to banking regularly. He picks out current accounts from Lloyds and NatWest, paying 3.5 and 3.35 per cent respectively.

"These are 'grown-up accounts' paying reasonable rates," he says. "Both offer a Solo cash card for controlled transactions."

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