Let your kids handle money their own way

Let your kids handle money their own way

Kids today undoubtedly have more money in their hands than any earlier generation. And we are not talking about a few coins jingling in their peddle pusher pockets, but crisp 500 or 1,000 notes neatly tucked in their wallets with Ben10 or Barbie on them. In fact, the eighth edition of Cartoon Network’s research study, New Generation, on kid’s lifestyle had estimated that Indian children earned as much as 664 crore as pocket money (including gift money) compared with their earnings to the tune of 478 crore in 2008. (The survey took a sample size of 3,431 kids in the age group of 7-14 years.) And that’s a lot of pocket money. With so much exposure to money and multiple spending options, it’s not hard for the kids to get on the wrong side of money habits.

Uday Sareen, country head, retail banking, ING Vysya Bank Ltd, says, “Kids grow up fast these days. They have far more cash than what we had when we were kids. In fact today’s kids are far more capable to handle money. To inculcate the discipline of savings and sense of responsibility, a savings bank account specially designed for kids works well." In today’s time, it’s prudent to expose kids to the banking channels early in life. Banks offer some unique solutions. To know more, read on.

What banks offer

Today kids’ savings account go beyond just savings—it exposes them to various banking solutions such as recurrent deposit, combination accounts, debit cards and Internet banking to name a few. So instead of giving pocket money as cash, help kids learn basics of savings, spending, investing and banking. Generally most banks in India let your child open a minor’s savings account if you have a savings account with the bank. But the general requirements and services each bank offer varies.

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Savings account: Almost all banks let you set a standing instruction on your account, wherein you can transfer a set amount in the kid’s account as pocket money on a monthly basis. While the kids can spend the amount as and when they require, they may need to maintain a small amount as a minimum balance requirement. With most state-owned banks, you can open a minor’s account with a few hundred rupees as minimum balance requirement. For instance, Andhra Bank’s Kiddy bank account is available at a minimum balance of 100. However, most private sector banks require a minimum balance of a few thousand rupees. For instance, ICICI Bank Ltd’s Young Stars account and ING Vysya Bank’s Zing account requires 2,500. Few banks, however, have a zero balance requirement. For instance if you hold the smart privilege account with Axis Bank Ltd, your kid can have a zero balance minor savings account and the same applies to Punjab National Bank as well.

Sole or joint account: You can easily monitor the child’s spendings from the savings account as banks give you transaction details on the minor’s account via an account statement irrespective of the type of account the minor holds—minor account linked to your account (joint) or a sole minor account. The type of account primarily depends on the age of the child. In some banks, the minor’s account will be under guardianship account. Usually a child below 10 years of age will have his account jointly with parents or under guardianship, but those between 10 and 18 years of age can open a sole account. For older kids, sole account gives them a sense of ownership and responsibility and it also allows the parents to monitor the spendings.

Recurrent deposit: Banks also let your minor open a recurrent deposits account, wherein the child can invest a specific amount every month for a fixed interest rate and fixed tenor. Gaurav Mushruwala, a Mumbai-based certified financial planners, says, “It’s important to ensure you are attaching a goal to the saving. Otherwise, the child loses interest in savings." Most recurrent deposits are straight-jacket products and vary little from bank to bank. Since, the deposit have to be made on a recurrent basis, these accounts help the child with savings with a specific target or goal in mind for a specific tenor, even while earning a higher interest rate than a savings account.

Combination accounts: Apart from the plain-vanilla savings account and recurrent deposits, banks offer a combination of banking solutions. Generally when the child gets his pocket money, there is a tendency to spend all of it. Another good way to encourage savings is by using a combination account. Ritesh Saxena, senior vice-president and head, personal accounts and direct banking, IndusInd Bank Ltd, says, “We have a combination of savings account and flexi recurring deposit. The essence is that the child is encouraged to save every month. The amount the child saves is transferred to a recurrent deposit, which can mature on a date of choice, for instance a child’s birthday."

Some banks offer a savings account which can be linked to a swipe-in fixed deposit.

With HDFC Bank Ltd’s account, once the balance in the Kid’s Advantage Account reaches or exceeds 35,000 the amount in excess of 25,000 is automatically transferred into a fixed deposit of one year in the child’s name by signing for such a facility.

Debit cards: Spending wisely is also an important part of money management. Most banks usually offer cheque book to kids above the age of 12 and who can sign uniformly. Banks also give debit cards to older kids which lets your child shop at various merchant outlets. Though most banks offer debit cards to kids above 10-12 years of age, HDFC Bank also offers them to children above 7 with parents’ permission. Sareen says, “Our kid’s debit card provides the ability for parents to fix monthly limits on ATM withdrawals and also for shopping at merchant establishments." Some banks let you choose daily or monthly spending limits on shopping and cash withdrawals while others may come with pre-set limits. While most banks give detail of debit card usage via account statement, some banks also offer this information in real-time via an SMS to your mobile.

Internet banking: While most banks allow you to monitor your child’s account using the Internet banking facility, some have gone a step ahead and offered net banking facility to kids as well. For instance, UCO Bank offers Internet banking facility wherein the child can monitor the account online. However, financial transactions are not provided as of now. Apart from regular banking services, bank also offer online portals that impart financial education.

With more money in children’s hands today, it’s only fair to give multiple options in terms of savings, investing and spending via banking rather than just the piggy bank.

Graphics by Naveen Kumar Saini/Mint