Should you open a bank account for a minor?

The Guptas have a 12-year old daughter, Nandini. They have been giving her pocket money for the past two years. They encourage her to restrict her expenses within this amount and also save a part of the money. With banks now offering independent savings accounts for children, they wonder whether its time for Nandini to have an independent account in which she can deposit money she gets as gifts and prizes.
The Indian Contract Act that governs transactions for a consideration between two entities holds transactions with a minor as null and void. Under the law, transactions with anyone aged less than 18 is not valid. Therefore, while Nandini can enjoy the benefits of a bank account, she cannot enter third-party transactions on her own. The bank will also not allow the account to be overdrawn, as that amounts to a lending transaction.

What Nandini will learn with her bank account is that she can deposit and draw money, track her account, transact online and understand how the banking system works. It also makes it possible for her to save and invest her money. Her parents will remain the guardians for all her transactions until she turns 18 and is able to conduct transactions on her own merit. The sense of responsibility and control she will get managing her own money will be useful.

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