Commentary: Are banking products for young children a boon or bane?

SINGAPORE: When I first heard that children as young as seven could soon operate their own bank accounts and hold debit cards, my reaction was: “No! Surely primary school children are too young!”

My initial resistance to financial products for children is due to the fact that many parents, including me, did not have bank accounts or debit cards while we were growing up.

In fact, most people of my generation only had bank accounts of their own when they started working. I opened my first bank account when I was 16, having worked part-time during the school holidays and needing a place to deposit my first earnings. 

However, I've since come round to the idea that a bank account and debit card for children might be safer and more meaningful than a cash allowance. This is because kids are living in a society that is going cashless, where mobile and contactless payments are increasingly the dominant methods of transaction.

This even applies to schools, as more primary and secondary schools are doing away with cash. Parents have to adapt by giving their children either smartwatches or debit cards that enable them to make payments at their school canteen or bookshop, or when they are out of school on field trips and need to purchase food and drink. 

ASSESSING CHILDREN’S FINANCIAL READINESS

Before applying for a bank account and debit card for my children, I would reflect on whether they have the maturity, financial curiosity and most importantly, the ability to grasp the concept that money is a finite resource.

In terms of maturity, your child should have an understanding of basic math such as differentiating between ones, tens, hundreds and thousands. He or she should be able to count, add and subtract.

They may begin to seek or display more independence, such as choosing what to buy for lunch at the supermarket, or being able to make payment for it at the cashier.

Financial curiosity would also be helpful, in assessing your child's readiness for his or her own bank account and debit card. He or she may be curious about why things cost the way they do, where money comes from, and how debit or credit cards allow you to pay for things.

This would be a good opportunity for you to explain why you choose to pay slightly more for organic apples, or why you set a budget of S$30 for children's birthday presents.

Finally, I think it is important for parents to teach their children that money is a finite resource. The truth is that children will only fully understand the value of a dollar when they understand the value of work.

Hence, they have to be taught that trade-offs need to be made between wants and needs. The use of a bank account and debit card is useful in that they may be able to set savings goals and look at analytics breaking down their spending patterns.

WHY IT MIGHT BE SAFER FOR KIDS TO GO CASHLESS

Debit cards for children such as the one offered by OCBC MyOwn Account come Oct 20, are in effect prepaid cards with a digital allowance. Parents can impose transaction limits and monitor their children’s purchases.

This means that as a parent, you would be able to stop Junior from buying the latest Nintendo Switch, which retails for hundreds of dollars, by putting in strict transaction limits on the debit card. You would also be able to stop your child from transferring large amounts of cash to win over friends in school.

However, if your child was using cash instead of a debit card, it would be impossible to track if he were making large cash transfers to a bully in school, for example. So, a debit card may be useful in increasingly cashless environments.

Why, you may ask, does a child as young as seven require his or her own bank account? The answer to that is also surprising. A child's debit card that is linked to the parent’s bank account poses a risk to the parental funds.

Should the child use his smartwatch to scan a malicious QR code or use his debit card to transfer funds to a scammer posing as a legitimate retailer, you would not want that smartwatch or debit card to be linked directly to your own bank account. 

Since most parents’ bank accounts would contain much larger sums of money than the children’s bank accounts, it might actually be safer for the children to bear mobile or contactless payment methods linked to their own much smaller bank accounts.

WHEN IS IT UNSAFE?

However, opening a bank account for your children and giving them their own debit card also creates myriad risks. Some of these risks are similar to those faced by adults – namely, how not to fall prey to scammers and malware.

If your children do not know how to protect their bank accounts, such as with two-factor authentication, they may unwittingly allow hackers to access their bank accounts.

Questions then arise: Would increasingly sophisticated AI-enabled hackers be able to access the parent's bank account from the child's account? Would hackers be able to obtain the children’s personal information and sell them on the dark web? These are areas of potential cyber vulnerability that banks have a responsibility to address.

While bank accounts and debit cards pose an opportunity for parents to teach their children financial responsibility, they also expose children to real-world challenges such as cybercrime, banking scams and insidious fraud.

Whether your child is ready to face these challenges depends on his or her maturity, independence and ability to protect himself or herself.

Lara Tung is a writer and publishes a website on personal finance and parenting.