savings bank account: Why a savings bank account is important for teens

The Shahs have a 15-year-old son, Priyansh. They have been giving him pocket money for the past five years. They encourage him to plan his expenses within this amount, and also save a part of it. Their relationship manager informs that the banks offer independent savings accounts for children. They are wondering whether it is time for Priyansh to have an independent savings account. An account where he can deposit the money he gets as pocket money, gifts and prizes. They also are keen 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 Contract Act that governs transactions for consideration between two entities holds transactions with a minor as null and void. Under the law, transactions with anyone aged less than 18 years are not valid. Therefore, while Priyansh can enjoy the benefits of a bank account, he cannot enter into third-party transactions on his own. The bank will also not allow the account to be overdrawn, a facility that amounts to a lending transaction. What he will learn with his bank account is that he can deposit and draw money, track his account, transact online and understand how the banking system works. This will also make it possible for him to save and invest. His parents will remain the guardians for all his transactions until he turns 18 and is able to conduct transactions on his own merit.

The sense of responsibility and control he will get managing his own money will be very useful to him once he steps out of the house and joins college.

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

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

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