The first bank account opened for your child is a source of joy for both the child and the parent. The child feels a sense of growing up and being responsible, while the parent feels a sense of accomplishment for securing the future of the child. It is not a good idea, though, to just go and have the account opened one day. A lot of research needs to be done.
Here are a few steps that will help you and your child know about the opening of a new account and maintaining financial balances.
- The first step is to explain the concept of saving, budgeting and understanding the return on investment to the child in simple terms so that they understand it better.
Your child would be receiving money as gifts, which can be used to teach these concepts. The power to budget for his needs and wants would also make him feel more responsible.
When the child has understood the concept of a budget he will need to understand the concept of goals and savings. A goal is when he needs to buy something like a bicycle or a game box and savings would be for the long term. If you are giving your child a monthly allowance, then goals and savings can be dovetailed into this concept. He can choose between taking out money from his monthly allowances to meet some immediate goal, but he would need to understand that such a move will reduce his savings. You need to make a visit to the branch to understand the types of accounts available. Children’s accounts usually have very favorable terms, because banks are looking to spend some money (or lose out on some earnings) in order to catch a future client and work for the long term. Once you have selected the account you would want to open, you must check what documents are needed. On the designated day, you can bring your child to the branch, and make the bank official explain the features of your chosen account to your child as if he is the decision maker. Many banks do not have the option of taking a debit card for a minor account, but if your bank does, then see if a card with a photograph of your child on it can be issued. Nothing would be more thrilling for the child.
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Once the first account has been opened, you have the option of scheduling an automatic debit of a certain amount from your account to your child’s account every month. Or you could choose to have him keep his monthly allowances in cash at home and once in a couple of months you can take him to the bank and teach him how to fill up the form and deposit cash. You can also teach him the power of compounding by opening a recurring deposit account for him which will draw a designated amount every month from his account.
Teaching a child the basics of financial management at an early stage is a very smart step to start him on the road to financial prudence, and opening the first bank account is a good way to do so.
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