Piggy bank savings is one of the first steps towards financial education. Almost everyone has had some education about financial saving in their childhood irrespective of the financial status of their family. From the rich to the poor, almost every parent tries to teach their children the significance of saving for the future. As a parent the best gift that one can give a child apart from quality education and a good standard of living is to make them financially literate. While encouraging piggy bank savings has been a time-tested formula which works well in empowering the basic significance of saving for a rainy day, there are various financial tools that parents can use for their children. Let us look at some of the options which are available for parents to invest in the name of their children offering them a first lesson in the real world of banking and finance.
Children Savings Account
A savings bank account is the first step towards creating a separate financial identity for the child. Parents can open a bank account in the name of their child with either of the parent signing up as a representative. The representative parent would be handling the account on behalf of the child. Once the child attains 18 years of age, the bank account is legally transferred in the name of the child.
Almost all public sector banks and private banks offer dedicated children savings bank accounts. Some banks even offer ATM and debit cards which are issued to children between 7 and 18 years of age. The cards come with a small ATM withdrawal facility with the permission of the representing parent allowing children their first experience towards handling ATM withdrawals.
Children’s mutual funds:
While savings bank account for children is a good idea, the interest rate on children saving bank accounts is substantially lower. In the world of rising inflation, any money sitting in the savings bank account is virtually getting diminished over time. The best way to offset such a scenario is to opt for children’s mutual funds. These are selected funds that divide their portfolio between equity and debt plans to enable a secure investment route. Mutual funds for children offer parents the option to invest a monthly amount through a systematic investment plan for their child’s future needs such as education or marriage. Most children’s mutual funds come with a three-year lock-in period or till the child attains the age of 18 whichever happens earlier. Once the child attains adulthood, the mutual fund is transferred in the name of the child allowing him or her complete access to the investment portfolio.
Invest in gold
Investing in gold is another idea especially for girl child as the gold corpus built over years can be used as a gift for the wedding later on in life. Investing in fixed and recurring gold schemes is a good idea. Simply investing Rs 1,000 per month in recurring deposit for 10 years can fetch the parents Rs 2 lakh considering an average interest rate of nine per cent per annum.
Encourage to earn pocket money
If you thought that imparting financial education ends when the child enters his teens, you need to think again. Teenagers are at crossroads of life and this is the time you need to make sure that they get good financial advice that can mould them for the future. They need to taught about the types of pocket money one which is given by the parents and another one is self-earned. They should be encourage to go out and earn their pocket money by offering their services in various part time centres. This trend is very popular in the Western countries. But Indians are still reluctant to adopt this. Teenagers can use their summer vacations and other holidays to refine their skills while earning some money. The money thus earned from their own effort is most likely to be used in a saving format thus sowing in the seeds of a good financial freedom.
(The writer is the CEO of BankBazaar.com)
