Bank accounts for minors - Advantages and Disadvantages
Bank accounts for minors – Advantages and Disadvantages
The Reserve bank of India in its May, 2014 notification has allowed minors above 10 years to open and operate savings bank account independently, if they desire so. Also minors of any age can open savings/fixed account with the help of their natural or legally appointed guardian. Many banks have already launched these services taking cognizance of RBI’s notification. Parents, Banking industry, sociologists and physiologists have given mixed responses on this decision, which we need to evaluate.
Advantages:
-As envisaged by RBI, this decision will promote financial inclusion in the country. So this is a welcome initiative as India already has poor financial literacy and banking penetration.
-Knowledge about banking procedure and its complexities will inculcate financial responsibility in minors and make them realize the importance of savings at early age.
-As students are now becoming more and more careers oriented at early stages of their lives, they can translate this knowledge into graduate degrees and can seek career in Banks and financial sector.
- Many children already have piggy banks and have a little sense of saving. RBI has institutionalized this tradition so that a proper structure enhances this sense of saving.
-Operating a bank account increases minor’s practical and operating knowledge of banking sector, which enhances their theoretical understanding as well.
-RBI had allowed opening of minor’s bank account way back in December 1976 with mother as the guardian and extended the facilities for such accounts in 1989. So RBI has just broadened the horizon of the already existing structure with new initiatives.
- The move will help in strengthening the culture of transacting through banks which will help in reducing the cash transaction over the money and a gradual fall in black money. Coming generations will learn to be more responsible.
Disadvantages:
-At the age of 10, minors are not mature enough to understand the financial structure and transaction details. The age should be increased to 14 or 15, as they develop better understanding at this age.
-Minors are vulnerable to financial losses and banking frauds. So any such financial loss will be incurred by parents or guardians.
-RBI has left the limit of transactions, monetary limits of account to banks own discretion. This will hamper the uniformity objective of RBI behind opening of these bank accounts.
-Chapters especially dedicated to financial education can be added into textbooks of primary classes, to make minors financially literate instead of opening bank accounts.
-RBI itself emphasized the need of parents or guardians help, this suggests the bank believes that minors are not enough mature to make independent decisions in financial matters.
-Another aspect is the legal issues involving in cases of fraud by minors or violating any contractual obligation. Since minors are juveniles, so banks cannot take action against them under the Indian Penal Code or any other banking law.
Conclusion:
The arguments of both sides suggest though intentions of RBI behind this initiative are good, but some issues are still there which need to be dealt with. Also, RBI had allowed this practice in past but at a small level. But the sense of independency RBI has shouldered on minors now (by allowing them to operate account independently) can be a setback if there is a failure of responsibility at the level of parents or guardians. Banks too need to understand this responsibility and should not emphasize only on exploiting the commercial aspect of these accounts.
Discussion
- RE: Bank accounts for minors – Advantages and Disadvantages -deep chandra pathak (09/29/14)
- indeed a bold step by RBI to allow minors to operate account independently but require strong basic pillar so that the decision be of win-win situation no doubt, .this step wil inculcate the saving habit in children from the beginning & vl make them more independent in their money matters in future. they vl feel more motivated to deposit their pocket moneys into their saving bank accounts. their confinement within the house due to small age vl also get loose & they will feel more social from a tender age and will develop the quality of standing among people more confidently.
but all these will b true only if the decesion is taken wisely. the limit of transaction in minor accounts should be such so as to nullifies any monetory risk for the minors as they are more vulnerable both physically n logically.since a contract with a minor is a void, so thinking that a minor after commiting a minor fraud can also not be repairable & nonpunishable. will not this advantage will motivate them to commit such mischeives further because they are not going to face the consequence of their deeds as their minor age is a camouflage for them. if a cheque is being issued by a minor in favour of somebody, returned back unpaid with statement insufficient fund , even then tht somebody cant sue the minor in the court due to void contract.
as every action has a equal n opposite reaction and every pros is being accompanied by prons, while drafting the policy for minor account all the factors should be taken into account by our financial bigwigs to avoid any hardship to the minor as well to the common people. - RE: Bank accounts for minors – Advantages and Disadvantages -Deepa Kaushik (09/27/14)
- Bank accounts for minors have their own pros and cons. The decision is good enough as far as the accounts are under the supervision of the parents or guardian. But independent operation of the bank account by the minors at the age of 10 is a critical scenario. The discussion is very much required to limit the access of the bank accounts in case of the minors.
Children are to the habit of saving through the piggy banks which just provide them with the sense and importance of saving. But handling the cash and understanding the finances and their use could be well understood by the practical experiences. Children now-a-days are much more smart and shrewd enough to handle their pocket money and finances. They can have a better understanding of the banking with this step. We can hardly find the practical usage of banking and finances explained anywhere in the textbooks. This could be a good opening in this regard.
With respect to the benefits we just revolve round the saving and banking habits in children. But we have a lot many possibilities for the ill-effects or bad consequences of letting the minor handle the bank accounts individually. The first one is the fraudulent activities. The minors at the age of 10 could hardly understand the intricacies of banking and financial offerings. They could be very easily lured and befooled to extract their hard saved money. On the contrary, some crook headed minors might develop easy access to others’ accounts which would increase in the frauds. Such minors could be hardly punished under the juvenile supervision.
Next comes the hideous outlook. With the financial independence, parents will lose the hold off the children and they could get into bad companies and activities easily. Parents could judge any such activities if their expenses are under adult supervision.
Thus, to be precise, it is not all that wise move to give the hold of bank accounts to the minors independently. It would be better to continue the banking experience in the childhood under the adult supervision and guidance, and understand the knowhow of the banking formalities in its depth.
