Financial literacy is an indispensable skill that every child should cultivate to adeptly navigate the complexities of the contemporary world. Understanding money management, budgeting, and the banking system can empower children to make informed financial decisions. Financial literacy is as critical as learning the arts and sciences because it equips individuals with the essential skills needed to thrive in everyday life. In India, where the banking system plays a pivotal role in the economy, educating children about opening and operating a bank account (with guidance of course!) can establish a robust foundation for their financial future.
‘The banking system in India comprises various types of banks, including public sector banks, private sector banks, and cooperative banks,’ explains Surajit Bose, a former banker with ICICI Bank. ‘These institutions provide an array of services such as savings accounts, current accounts, loans, and investment options. For children, grasping the purpose of a bank is crucial. The understanding that banks facilitate secure savings, interest accumulation, and effective financial management is a priceless education for children in their formative years.’
He adds, ‘Opening a savings bank account is a straightforward process that can in itself serve as a valuable learning experience for children. Most banks have two separate versions of accounts for minors, one for those below 10 years and another for those between the ages of 10 years and 18 years. The first step is to select a bank that offers accounts tailored for minors. Parents or guardians must accompany the child to the bank, where they will need to provide essential documents to open a minor savings account.’
Documentation required to open a bank account for a minor:
- Minor’s Officially Valid Document (OVD)
- Relationship Proof between Minor and Guardian
- Guardian’s PAN Card if the guardian is the earner of the funds that will be deposited in the Minor’s account. Otherwise, the minor’s PAN Card is to be updated.
- In case a PAN Card is not available for both the Guardian and the Minor, Form 60 by the guardian is required
- Passport-size photograph of the Minor
‘For minors below 10 years, only the parent or guardian can operate the account,’ explains Surajit Bose. ‘However, minors of 10 years and above, but below 18 years of age can open a Minor Self-Operated Savings Account and operate their savings bank accounts independently. The banking eco-system has put various checks and balances along with required incentives for parents to open minor accounts and encourage children to become financially prudent from an early age.’ He also offers a few salient features of minor accounts:
· Restrictions: Banks place limits on the amount of money a child can withdraw or spend in a day, and the total amount they can spend in a year. These limits prevent misuse of the account.
· Parental consent: A child's parent or legal guardian must provide consent for the child to access the account, including using a passbook, cheque book, or ATM card.
· Account balance: There is usually a minimum balance that the account must maintain, and the bank may charge a penalty if it's not met.
· Account inoperability: The account becomes inactive when the child turns an adult, but the bank will allow the account holder to convert it to a regular savings account.
· Account notifications: The bank will send a notification to the child's parent or legal guardian whenever a transaction is made on the account.
· Autosweep and Insurance: Most banks offer an auto sweep-in facility to convert excess balance into a fixed deposit. Some banks offer free insurance for the child with up to 5L of accidental coverage.
Once the account is established, children can learn the basics of banking and start their financial journey in the following ways:
• Learning how to budget
• Understanding the value of money
• Learning how to save
• Learning how to deposit and withdraw money
• Learning how to track the account
• Learning how to transact online
• Realising the power of compounding
Financial literacy is a critical skill that can significantly benefit children as they mature. By understanding the banking system and learning how to open and operate a bank account in India, youngsters can develop responsible financial habits early on including the value of saving over spending. This knowledge not only prepares them for future financial independence but also instils a sense of confidence in managing their finances. As they navigate their financial journeys, these skills will serve them well, enabling them to make informed decisions and achieve their financial goals. While the arts and sciences nurture creativity and intellectual growth, financial literacy ensures that individuals can apply these skills in practical, meaningful ways, securing their financial well-being.