Should you give your child pocket money or open a children's savings account?
Posted by: Arti Bhargava on Nov 13, 2017, 06.30 AM IST
Rosesh's 10-year-old son wants pocket money. As responsible parents, Rosesh and his wife have been discussing this and feel that giving their son pocket money would help him learn money management.
They are keen to give their child a fixed amount every month and ask him to meet his 'expenses' with that. They feel this would educate the child about saving and budgeting.
However, their financial adviser has asked them to open a savings bank account for their son and use that to educate him about money management instead. Which is the better option?
Tracking the savings bank account balance to see if the money is increasing or decreasing is exciting for young children and may also help them introspect about their spending and saving habits.
The pocket money can be credited to the account on a monthly basis, along with any gifts or earnings. By keeping the money in a bank account, the child will learn about earning interest income. A bank account also takes away the drudgery of writing down accounts. The minor-operated bank accounts come with various checks and balances that the parents can put in place. Rosesh and his wife can put tabs on his spending by choosing the transaction limit and make the spending limit known to him.
They can also track the account and hence, the spending. Costs of maintaining an account and requirement of minimum balance would inculcate a sense of monetary discipline. Children can start saving their pocket money in such accounts to keep their money safe, earn interest and withdraw money for small spends. Such savings accounts will prove to be the stepping-stones for discussions on spending, investing and other financial concepts, which can be gradually introduced.