Savings bank

Why a savings account is important for teens

The Shahs have a 15-year-old son, Priyansh. They’ve been giving him pocket money for five years. They encourage him to plan his expenses within this amount, and also to save some of it. Their account manager informs that the banks offer autonomous savings accounts for children. They wonder if it’s time for Priyansh to have an independent savings account. An account in which he can deposit the money he receives in the form of pocket money, gifts and prizes. They also want to see how his personal finance learning improves with this development as he will have to manage his funds and expenses on his own when he goes to college.

The Indian Contracts Act which governs transactions for valuable consideration between two entities considers transactions with a minor as null and void. By law, transactions with anyone under the age of 18 are not valid. Therefore, while Priyansh can enjoy the benefits of a bank account, he himself cannot enter into transactions with third parties. The bank will also not allow overdraft, a facility that is equivalent to a loan transaction. What he will learn with his bank account is that he can deposit and withdraw money, track his account, transact online, and understand how the banking system works. This will also allow him to save and invest. His parents will remain the guardians of all his dealings until he reaches the age of 18 and is able to transact on his own merit.

The sense of responsibility and control he will gain from managing his own money will serve him well once he gets out of the house and into college.

The Shahs should also take measures such as guiding Priyansh and setting alerts for transactions to monitor his activities. One of the main lessons about money is the allocation to multiple uses. With a bank account, he will make real choices with a given sum of money and will be able to see how to decide between different options. He will also see how small sums can do a lot and how banking operations are put in place to ensure safety. These lessons will have a good practical use in his adult life. Banks have limited the amount up to which minors can be allowed to manage deposit accounts independently. Therefore, the risks can also be limited and the account can be operated with parental supervision.

(Content on this page courtesy of the Center for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta)


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