Trust bankers to spot a trend and an opportunity. If children are increasingly being seen in shops unaccompanied by parents, it is because they have more money on their hands. As expenses amplify, pocket money has increased, presenting parents with a dilemma: financial independence or tabs for children? The answer is a spending and savings plan.
Enter banks, with a child’s savings account issued to minors under the guardianship of parents. The account includes a free passbook, a debit card if a parent agrees, facility to transfer money from parents’ accounts, cheque books that have to be signed by a kid and a parent in some cases, and Internet banking access. There is usually an additional balance amount that parents must maintain for a child’s account.
“During research, we could make out that children have access to more money than before,” says Sonalee Panda, head (products and marketing), ING Vysya Bank . The bank launched a child account facility in December 2010.
Such accounts instill financial discipline in a child by introducing him to the banking world. Children become aware of the fundamentals of banking transactions and facilities, such as debit cards, cheque books, fund transfers, withdrawal and deposit of money, says Surinder Chawla, group head, HDFC Bank Retail Liabilities Product. A parent is enabling a child to decide on expenses and savings with an account. He/she is also passing on the responsibility and excitement associated with the decisions of an adult.
Many banks offer such accounts. The account is opened in the name of a minor, but a parent or guardian holds transaction rights. “The parent or guardian cannot use the account for depositing cheques received in their names,” says Chawla.
Some banks use a child account to promote products such as mutual funds and life insurance. “We encourage parents to start a small SIP, which we graphically track on the statement and help the child understand how the investment is performing and how it is linked to the equity markets,” says Panda.
The flip side
A child account is similar to a regular savings account. “The only difference is that it is offered to minor customers,” says Chawla. So costs related to a child’s account are the same as that for an adult. Banks charge cash transactions that exceed a limit. ICICI Bank charges Rs 50 a transaction if there are more than 12 in a quarter. HDFC Bank allows up to five free cash transactions a month. Thereafter, each transaction costs Rs 100.
A child’s account opens up the possibility of misuse and fraud. Parents need to be careful about cheque books and charge slips. Some banks deem charge slips (a piece of paper with transaction details) of a child debit card that a holder signs as signed by a guardian or parent. This loophole is an invitation for cheats. Many parents pick debit cards for children. “Some parents think kids can pay school fees with a debit card as most schools these days have ATMs, and a debit card is better than carrying cash,” says VN Kulkarni, chief counsellor at Abhay Credit Counselling Centre.
A few experts frown on debit cards. “If a 10-year-old is offered a debit card, chances are that it will be lost,” says Kulkarni. “There was a case where a rickshawallah’s son lost a credit card. Though the limit on the card was Rs 30,000, he received a bill of Rs 18 lakh due to misuse,” he says.
Some parents need no telling. Paul D’Souza from Mumbai is one. He opened an account in six-year-old daughter Renita’s name without a debit card. “Debit card is a no-no for kids because you don’t know how they will use it.” Children are provided a separate login ID and password for Internet banking. But if tech-savvy individuals can be cheated, parents can be forgiven for thinking that their kids are susceptible to fraud.
“Passwords may be misplaced,” says Suresh Sadagopan of Ladder 7 Financial Advisory Services. There is also the danger of phishing and ‘get rich quick’ scams.
A child’s account is aimed at infusing financial rigour. A parent must be equally disciplined, watching if a child is misusing money or wavering from the spending and savings goals. Help the child organise bank statements. You can do the math together on the money. Deposit money while children are present. You can teach a child how to complete a slip and withdraw money.
“A child will not learn unless the parent spends time with him,” says D’Souza. A stark reminder of financial indiscipline is accounts that turn dormant if not used for a year. Renita D’Souza’s account at the Malad branch of HDFC Bank became dormant after it recorded two transactions in three years. “The account was a toy for two days,” says Paul.
In case of misuse, it is time to turn strict. “One can deposit `2,000 at the start of the month as pocket money. If the kid blows up the money at one go, he should not get anything else for the month,” says Sadagopan. Generous parents can hand over “`500 with which he has to make ends meet”, he says. “This amount can be deducted from the next month’s pocket money. As long as parents inculcate some basic discipline, it is not such a bad thing to have a child’s account,” says Sadagopan.
Parents wary of Internet fraud can pick an online viewing account that doesn’t allow transactions. A child’s account helps teach children to bank and be responsible, but parents must tread with caution. “As we know, a fire can be used to cook and also to burn a house,” says Sadagopan.
Source: Economic Times
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January 31, 2011