Teaching money-saving to teens
If you think your kids could learn a thing or two about saving, whether it’s their monthly allowance or birthday money, here are a few products that could control their urge to splurge.
Teenagers aren’t typically great at saving their allowance or managing their expenses, but in just a few years’ time, they will be a part of the working population, earning a full-time salary. If you have tried to explain the need for saving, but failed, maybe it’s time to take the money out of the drawer or cupboard it’s stored in and put it in a banking account, if not also think of investing the money in a recurring deposit or a fixed deposit. Turning withdrawals into a process, even one as quick as an ATM, could make a difference to a teen’s spending habits.
Money in a drawer may seem like it’s only for spending, but teenagers could be more aware of their actions. Account statements can lend a sense of satisfaction to the savings process. It is also easier to monitor your child’s spending this way. Any child over the age of 10 can open an account (usually joint). Even at private banks, the minimum balance isn’t Rs10,000, as it usually is, but Rs2,500. Public sector banks, of course, take it even lower than their nominal minimum balance requirement of Rs1,000. With Andhra Bank’s Kiddy Account, for example, you need only keep Rs100 on average to keep the account going. With most children’s accounts, the entire amount need not be accessible. With HDFC’s child account, for example, your son or daughter will be able to withdraw no more than Rs2500, as compared to Rs45,000 with other accounts. With the ICICI Young Stars account, you can ask for the minimum daily spending limit to be Rs1000, Rs1500 or Rs2500.
|Bank||Age||Minimum balance||Sweep-out facility||Daily spending limit||ATM card||Internet banking|
|ICICI Young Stars||No bar||Rs2500||Yes||Rs1000/Rs1500/Rs2500||Yes||Yes|
|ING Zing||No bar||Rs2500||Yes||None||Yes||Yes|
|HDFC Kids Advantage||No bar||Rs5000||Yes||Rs2500||Yes||Yes|
|Andhra Bank Kiddy||No bar||Rs100||No||None||Yes||No|
|Bank of Baroda Gen-Next Junior||No bar||Rs500||Yes||None||Yes||No|
Pick if: A fixed amount can be put aside each month
By setting a goal, children may even be enthused by the idea of saving. A recurring deposit is a great way to save up for a big purchase. All banks offer this product at more or less the same rate of interest. Basically, a fixed amount of money (as little as Rs500) is debited from the account on the same day of every month. At the end of the tenure of the scheme – say, 12 months – the money matures. Currently, for example, Corporation Bank’s recurring deposit account offers interest of 9% per annum.
Pick if: There are likely to be spikes in the bank balance
If it’s the festive season or your child’s birthday, it’s possible that a lot more money than usual will be lying in your child’s account. If your child or you feels that this money is better off earning a return rather than simply lying in the bank, you could set up a sweep-out facility. You could, for example, set the amount at Rs15,000. In this case, every subsequent Rs1,000 would immediately be transferred into a one-year fixed deposit that will earn interest at the prevailing rate.
Public provident fund
Pick if: Interested in long-term savings
Your kid may not be so excited about the just how long-term funds are locked into the PPF scheme for, but he/she might thank you later, as the money would benefit greatly from the compounding effect. In fact, it might even make sense to open an account for your child if you plan to invest the money yourself. No, you can’t get an additional tax benefit under Section 80C, but the money will be tax-free on withdrawal. Currently, the PPF scheme is earning an interest rate of 8.7%.
One thing to remember is that income earned by a minor is also subject to tax. The earnings are to be clubbed with the total income of the parent with larger earnings. However, there is a tax exemption of up to Rs1500 per year on the taxable income of a minor.