By Anna Rich
“Kids who have had frequent money conversations with their parents are better positioned for financial responsibility in adulthood,” says US investment management company T Rowe Price, referring to findings from their Parents, Kids & Money surveys.
One way to start that conversation is by opening a bank account with your child. Four of the big five banks have products geared to children: MegaU at Absa, for under 20s; FNBy for under 18s; Nedbank4Me for under 16s; and (sum)1 at Standard Bank, for under 16s. Capitec offers a single account, Global One, to everyone, including minors.
It’s a prime opportunity to teach your child to compare what you need against what you get from banks, but FNB and Standard Bank are out of the mix unless you are a customer, as children’s accounts are linked to their parent’s account. At the other banks, the parent needn’t be a client, but is involved in the process. If you open a Nedbank4Me account for your child, a Nedbank profile is created in your name, explains Bridget Nkandu, executive, youth segment at Nedbank.
Besides product comparison, there are several other valuable lessons:
1. Different financial products serve different purposes
Is your intention to encourage your child to save – a graduation from the child’s piggy bank? All the above-mentioned accounts are transactional: vehicles for getting and spending. With the exception of Capitec’s account, they do not earn interest.
At Absa, your child does not need a MegaU transactional account to open a MegaU savings account, says Cowyk Fox, managing executive: everyday banking. However, they can link these accounts.
For the rest, to earn interest, your child needs a savings account, which is accessible once they have a transactional account.
With Nedbank4Me, your child can link up to 10 free savings pockets, name them according to his or her savings goals, and access funds immediately, says Nkandu. “The interest rate (which doesn’t fluctuate with the repo rate) is 3% for deposits between R0 and R9 999.”
At TymeBank, the account holder has to be 16 or older. But you could open an EveryDay Personal Account (transactional) in your name, then access the linked GoalSave savings vehicle to save for your child. From day one to 30, interest (not linked to repo rate) is 4%; day 31 to 90, 5%; and from 90 days, 6%. Give 10 days’ notice of withdrawal after 90 days, and you’ll get 7%.
2. Consider interest rates in relation to inflation
Your child might be aware that prices tend to rise. Check the current rate of inflation together (via StatisticsSA) and compare it with the interest rate your child is getting. If the latter is lower, your child will see that the buying power of his or her money is dropping.
3. The devil is in the detail
“No monthly fees,” they all say, besides Capitec, which charges R5 a month.
Explain the semantics to your child: you don’t pay for the service of a place to park your money, but the bank does charge for many of your money moves. Check the bank’s pricing guide online.
With Capitec’s Global One, what amount do they need to keep in their account for a year so that the interest, currently 2.25% a year (linked to the repo rate), cancels out the monthly admin fee of R5? Is your child able to apply basic arithmetic to find out?
First, bring the fee to an annual rate. So 12 months x R5 = R60. To determine the break-even amount: 2.25% of the break-even amount = R60. Therefore, it is R60 ÷ 0.0225 (2.25% expressed as a decimal) = R2666.66.
4. The same transaction can vary in cost
Costs are on a spectrum, with in-person service at a premium. Show your child the different charges for cash withdrawals (and deposits) at each point: using your own bank’s ATM is cheaper than that of another bank, and transactions at branch counters cost much more. Charges for prepaid airtime purchases follow a similar pattern.
For a young Absa client withdrawing from an Absa ATM, there is no charge. But they’ll pay R12 plus R2.20 per R100 at a Saswitch ATM, and R80 plus R2.20 per R100 at the branch counter. FNB charges even at its own ATMs, and R80 plus R2.75 per R100 over the counter. Nedbank gives its young clients four free withdrawals monthly at their ATMs, but charges R80 plus R2.20 per R100 at the branch.
Discourage your child from drawing cash ahead of making a retail purchase, as banks don’t charge them for point-of-sale swipes.
5. You pay a price for mismanaging money
Show your child how to do a free balance enquiry – all the banks offer this. If a till point transaction doesn’t go through because of insufficient funds, FNB and Standard Bank charge R8.50; Nedbank, R8.60; and Capitec, R0.40. Young Absa clients are not penalised.
What if they try to draw cash at their bank’s ATM without enough money in their account? At Absa, again, there’s no penalty. FNB, Nedbank and Standard allow young clients to get away with this at their own ATMs, but hit them with a fee at other ATMs.
Lost bank card? Absa MegaU kids get free replacement, but Nedbank and Standard charge R145; FNB charges R120; and Capitec, R70.
NOTE: Every effort has been taken to ensure accuracy. However, please check with the relevant bank before making any decisions, as information is subject to change and interest rates fluctuate.
PERSONAL FINANCE