Have you opened a savings bank account for your child?
Parents are often seen complaining that their kids don't seem to understand the value of money. Swayed by competition and peer pressure, children sometimes become extremely demanding of materialistic things. However, if you as parents try to educate and motivate children to use money in an efficient and organised manner, it will not only make them money-wise, but also help them become responsible spenders.
One of the simple ways of doing this could be opening a bank account for your child (Yes, this is possible!). At present, a large number of banks allow minor kids (under the age of 18 years) to open a savings bank account. Although you might feel that letting children manage money on their own could lead to reckless spending, remember that you can remain the guardian of their transactions till they attain adulthood or become 18 years of age. Also, you can ensure that there is a limit on the amount that your child can operate individually.
You see, there are several merits of opening savings bank account for children:
PersonalFN is of the view that opening of a savings bank account for children can help them learn about money matters at a young age so that they become financially independent in the long-run and don't make errors when they grow up. However, it is imperative that parents keep a watch on their children's accounts and ensure that they don't indulge in any careless spending.
- To instil in them the habit of saving
Values and habits formed in the childhood can last a lifetime and are very difficult to change. Hence, it is important to induce your little ones to save money from the early years of their life. If your children have their own bank account, they will be encouraged to save and invest a portion of their pocket money. They will be also able to keep a track of where their funds are being spent every month.
- To make them financially independent
Once children start to save money, you must encourage them to do it systematically for achieving their goals (such as purchasing a fancy gadget, bike or even saving for their education). This will not only shape their vision, but will also make them organised and responsible individuals in the long run, doing good to their financial well-being. They will realise the value of hard-earned money and not take money matters for granted. Remember that money management skills once developed can make your kids financially independent and responsible when they grow up.
- Create awareness amongst them
When children will open their own bank account, not only will they take interest in money matters but will also become aware about how a bank functions. They will learn how transactions are done, how money is withdrawn and so on. Moreover, when they see their savings grow, they will understand how interest is calculated and recognise the power of compounding. This will help them enhance their mathematical and analytical skills.
- Aid them to get a sense of family's financial situation
Once children develop an interest in money matters and gain practical knowledge regarding bank accounts, they will no longer be a complete novice when it comes to understanding financial matters. With the uncertainties surrounding our lives, it is imperative that kids are aware about the family's financial situation. This will not only augment the children's knowledge, but also help them to step into the shoes of the 'finance manager' of the family. Hence they will not be misled by anybody in case some unforeseen contingencies occur in the future. You must also allow children to go through your personal bank statements and credit card bills so as to teach them the impact debt can have on the outflow of money.
PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.
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