How parents can teach children about money, investing and power of compounding

One needs to inculcate good financial habits in children. There are many tools for teaching concepts about money, investing, and the power of compounding and some of the ways of going about it are discussed below.

Savings account

A children’s saving account can help teach how money is deposited, withdrawn and interest is earned. The child can deposit cash into their accounts that they receive as gifts. The account opening form is signed by the guardian.

Setting up RDs and SIPs

To start a recurring deposit, the instruction to the bank should include frequency, and deposit amount. One can also open a mutual fund folio in the name of the child and set up SIPs. The child can then see the different companies in which his money is being invested and how small amounts can grow to a large corpus over time. There are special plans launched by funds and insurance companies for children.

Debit card

In today’s world, where even adults carry minimal cash, our children need to understand how cards work. A children’s debit card comes in handy and useful for the child to make transactions within limits set by the parent. The parent receives an alert for all the transactions made by the child. Banks usually issue debit cards for children above a certain age. These cards carry the child’s name.

Points to note

  • Once the child turns 18, the children’s account gets frozen and the young adult has to submit his/her own KYC documents.
  • It is important for the parent to involve the child while transacting on their behalf.
  • PPF or Sukanya Samriddhi Yojana accounts can also be started for the child which can show the child how an education corpus can be created out of annual contributions.
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(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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