In an effort to promote financial inclusion, India began allowing banks the ability to open savings accounts for minors over the age of ten in 2014. These accounts were independent, opened and run by the children without an adult’s consent.
India had previously allowed children to have accounts with a parent or guardian, including only a mother. They can now assume operating control of their accounts at age ten, or open their own independently at age ten.
In addition to savings accounts and fixed deposit accounts, other banking services that can be offered to children include internet banking, ATM cards, and cheque books. There is a provision in the instructions to banks that minor accounts are not allowed to become overdrawn.
Banks are allowed, for purposes of risk management, to limit the age and activity of minors, but most have chosen to allow the ten-year old limit to apply. Banks are actively marketing to children, and have a number of both independent and adult-involved account options.
The ideas behind independent savings accounts for children include increasing knowledge, opportunity, and skills relating to economic rights for marginalized and vulnerable children. Learning-by-doing may be an effective means for promoting financial education, and increased access to financial services may lead to greater inclusion, and the ability of children to invest in their futures through accumulating capital and establishing credit. This approach is promoted by international organizations such as Child and Youth Finance International.
Questions about the approach remain, however, and need to be studied before significant resources are spent advocating this approach for financial inclusion for vulnerable children across the world. With India’s experience, banking leaders should assess if children are actually using their independent accounts, or if they are being used by an adult as a shell account; if having an account is leading to children developing savings behaviors and gaining capital; if children are using internet banking and ATMs safely; if marginalized and vulnerable populations of children are moving out of poverty as a result of this increased access to financial services. By studying these questions, economists can fine-tune the approach to providing financial services for minors and promoting financial inclusion for vulnerable children.
Find out more about Fern Software solutions, click here to request for our brochures for free!