“Someone’s sitting in the shade today because someone planted a tree a long time ago.” Warren Buffet
This quotation, it made me think that this is what children that were taught to be financially smart turned out as adults. This next made me feel that it was just not important to send children to school to learn how to count and write, but as parents to teach them about the value of certain aspects in life. With consumerism overtaking the economy even in developing countries of the world like India, many youngsters are having easy accessibility to credit cards and EMI’s, making our children realize the difference between a real want and need would make them financially smart for a lifetime.
Hence smart parents should assume a vital role to render useful lessons of financial management to their children. Smart parents would not only render useful finance lessons, but would also be a prominent example and take effective feedback by making their children a partner in their financial decisions.
Let’s look at how we can make parenting to raise children, who are financially smart, an interesting and enjoyable experience.
Have a look at these aspects in inculcating learning about personal finance:
- Simple living: My grandfather has always been a part of my learning principles of smart financial management and I respect him for what he always told us as children, “Simple living and high thinking are the essence of life. We should be able to live with minimum wants if we wish to have an umbrella over us for a lifetime.” He was a standing example or what he preached, making me feel we could make our children lead better lives if we rendered these lessons to our children and practiced it ourselves to set an example.
- Setting Financial Priorities: Setting priorities in our children such as ‘having basic necessities of life like food, clothing, and shelter were more essential than fancy and fashionable articles’ would surely help. The habits built at the cradle carry on to the death bed. This applies in educating our children about the clear demarcation between wants versus needs.
Setting up financial priorities in children could start off with teaching them budgeting that is appropriate to their age. Inculcating the habit of budgeting in our children would start off with working together with them and making a child friendly budget. Young children are very happy to have budgets prepared with bright colors, graphs and other visuals. A joint effort would make them feel a part of it and be ready to cooperate and learn.
- Goal Oriented: My observation of financially smart adults made me understand that they believed in saving for a goal. So we need to involve our older children by involving them in budgeting for costlier possessions like car, a house, new furniture or probably saving for a sound education or marriage. It is true that even younger children need to be encouraged to save for small fancy needs like probably going for a movie, an evening having pizza or that remote control toy or Barbie doll. Their achievement would give them a sense of fulfillment that could make them feel motivated and focused to save for bigger goals.
- Rewards: Motivation has always been the keyword to progress, so praise and rewards could also make a great impact on children learning and implementing financially smart objectives. In addition teaching our children of how to survive and earn would help. So suggesting alternative ways to earn, like helping in the cleaning of the car, helping younger siblings with homework, running errands like shopping for essential or helping in small household chores in an age appropriate manner would surely help.
- Banking: “Putting your savings in the bank would help you earn more money to meet your financial goals,” is what most financially smart parents would have instilled in their children right from childhood. A savings bank account started with parents being a guardian would help overlook their children’s spending habits and guide them.
- Financial Learning: In addition instilling a habit of reading articles and reviews on finance have helped many financially smart children to save for their future once they started earning.
Stocks, shares and other financially appreciating instruments are best taught to older children, with involving them in real life examples of your investments helping a lot. Next is to introduce them to credit cards and loans. When they should be taken and when they should be avoided need to be taught well in advance.
Experience makes principles of smart financial planning more deep. So allowing our children to borrow money from us and repay it back with/without interest makes them realize the impact of loans.
Lastly do realize that each child is made in a different way with different spending and savings traits. Identifying each child’s financial habits early in life would help us to guide them tactfully without being imposing on them. I have known of children who have learnt better by their falls in financial decisions, so just rest assured that experience sometimes renders the best lessons for a healthy financial life.
(The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Director and Chief Financial Planner of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.)
In the last 10 years, sensex gas grown at 17.79% CAGR. That means, if someone could have invested Rs. 1 lac 10 years back, it could have grown to 5.14 lacs. In the last 10 years one third of diversified equity mutual funds have delivered a CAGR of more than 25%. That means if someone could have invested 10 years back in these mutual funds Rs.1lac, it could have grown to Rs.9.31 Lacs.
