Should I open a savings account for my child?

Money can be a tricky concept for many. While many believe it unwise to discuss money matters with their children, it cannot be denied that healthy financial habits need to be learned by children. According to a study published by the University of Cambridge, children begin absorbing the concept of money from the age of 7.

One of the best ways to do this can be to open a savings account for your young one. A good time to start an account for your child might be when they reach the age of puberty and gain a relative understanding of the world and money. This may have a huge impact on your child’s understanding of finances and their future financial behaviour. But there are several risks that you need to understand before making the call.

The Advantages of opening a savings account for your child:

Experience with transacting with money

One of the reasons why young adults -are prone to making financial mistakes is because they don’t have any real experience of transacting with money. Beginning a bank account for your child means that they will have a passbook and a debit card issued for them, enabling them to have the tactile experience of dealing with money. It becomes a solid, serious concept for them, unlike video game coins or monopoly cash.

Money management

Having a savings account of one’s own gives children a very clear understanding of concepts like saving, purchasing power, etc. It enables them to budget accordingly, as well as understand the absolute necessity of saving, since it’s a grown-up version of a piggy bank. It gives them the freedom and agency to explore and understand how to handle finances. All of these lessons will serve them in their adulthood.

Early investment goals

Most savings accounts offer at least a low rate of interest. This could be a great stepping stone in helping them understand the basics of investment. As they grow more financially independent, you can introduce them to more complex investment types and ideas. You could also introduce the concept of short-term (e.g. saving up for a dinner with friends) and long-term (saving up for a bike) savings goals. These investment goals will help in fostering very essential skills of long-term gratification and impulse control in children. They will be forced to behave more maturely with and around more money when they realise, through first-hand experience, that it is a finite resource.

The Disadvantages of opening a savings account for your child:

Requires oversight

Handing over an entire savings account to your teen might be a huge risk. While it entails the message that you trust them, children are bound to make mistakes of their own. They might overspend or be too casual or uncalculating about the money as they’re not mature enough to make independent financial decisions. Therefore, especially in the beginning, it would require your thorough oversight. You might need to guide them and keep an eye on the transactions from time to time to make sure that it’s being used in their best interests.

Penalty for violating minimum account balance

Depending on the bank, some savings accounts might need a minimum balance ranging anywhere from Dh 100 to Dh 1000. If this minimum balance is ignored and there is overspending, you will have to pay an additional penalty. This is something that needs to be considered, too, as children might be more careless with this.

Higher risk of misuse and fraud

Children would be more vulnerable to financial misuse, fraud, or scams than adults. They can be taken advantage of due to their lack of experience, and they could be easily targeted by cyber criminals leading them to online and financial frauds and scams.

When you start the account, make sure to sit your child down and explain to them in detail the different kinds of scams that make the rounds and how to protect themselves against them. Be aware of all their passwords, and make sure you know where their money goes. This is a very real risk; therefore, better safe than sorry.

UAE Banks where you can open a savings account for your children:

Below is a non-exhaustive list of bank account options for children put forth by banks in the UAE:

•ADIB Amwali Savings Account

•ADIB Baboon Children’s Savings Account

•Mashreq Neo NXT

•Al Hilal Youth Account

•Al Hilal Seghaar Savings Account

•Al Maryah Eyalna Minor Account

•Al Masraf Arab Bank Minor Savings Account

•Ajman Bank YOUNG Account

•Dubai Islamic Bank Shaatir Savings Account

•Emirates Islamic Child Savings Account

•Emirates NBD Liv Young Account

•Rakbank Minor Account

•HSBC Little Expat Savings Account

•National Bank of Fujairah Savings Account

•SIB Hassalati Account

The documents you need to open a savings account for your child:

1.Valid Emirates ID (of both parent/guardian and minor)

2.Valid Passport (of both parent/guardian and minor)

3.Valid Visa (of both parent/guardian and minor, for expats)

4.Physical proof of residential address

Starting a savings account for your child is a great way of setting a solid foundation for their financial future. But this step needs to be taken with utmost care and after thorough research.