Dear Readers, I came across an interesting article in ET Wealth which talks about whether parents should open a bank account for their children or give them a debit card? Every parent should read this at least onceโฆ
Yes, having a kid-specific account is a smarter choice, but how does it differ from a regular joint savings account? "A kid’s account is a customised offering for children below 18 years of age, which introduces them to the basics of banking, interest rate and goal-based saving. While many banks offer ‘minor’ accounts as a default option for parents opening an account with kids, in others, you can also opt for a regular joint account. In both the cases, the parent or guardian operates the account, but the former offers various features and benefits that are not available in a regular account. For instance, the average quarterly balance (AQB) maintenance is much lower, or even waived, in child accounts (see table). Besides, parents can transfer a fixed amount from their own accounts to that of the child on a regular basis and invest in avenues like mutual funds.
These accounts also contribute significantly to the financial education of your child. "They provide the opportunity to parents to enable their kids to start banking at an early age and instil the banking values in them. Not only is the child exposed to financial terminology and operations, but the option of making deposits in his account, writing cheques, getting personalised statements and making withdrawals from an ATM introduce him to bank functioning, giving him confidence and a sense of ownership. It also inculcates the habit of saving and investing in children, which helps build a strong foundation for financial literacy.
Such accounts also typically offer a debit card to the child after a specified age, which varies among banks. While parents have the option of refusing it, and most invariably do, it may be more beneficial for the child than you think. Kids like to be treated as grown-ups and a debit card makes them feel like one. As long as the parents can monitor the spending (and banks give them this option), there’s no harm in getting one.
Card transactions also enable the child to regulate the spending and saving from his bank account, and become responsible for his own money. Another long-term advantage is that the usage of debit card acts as a kind of initiation for the child into the world of credit cards as later in life, and in building of good banking behaviour.
If, however, you feel that your child does not have the financial maturity to deal with the plastic, do not opt for it at an early stage. Wait till both you and the child can avail of this facility with more efficiency.
Source: ET Wealth, Nov 11, 2013