Publication: The Times Of India Mumbai; Date: Sep 9, 2008; Section: Your Money; Page: 24
Teaching your children about money could be your best gift to them. They may not appreciate it now, but they’ll thank you when they’re financially responsible and successful young adults
Peer pressure is probably the worst enemy of the parental purse. My friend Ravi and his wife Maya were having trouble with their 12-year-old son, Rohan. The boy seemed incapable of delaying gratification: he had to have everything now. He lacked confidence, and because of peer pressure, he wanted everything his friends got—not just toys, but also more expensive stuff, like clothes, mobile phones, and other things. Rohan apparently thought his parents were very rich, with an unlimited reservoir of money.
At a loss to deal with this, Ravi and Maya sought my help, and we ended up having a lengthy discussion on financial literacy for kids. Rohan is hardly a “problem child” where financial literacy is concerned; it’s an issue with a lot of children who are exposed to affluence at a tender age. Perhaps the main reason for this is the
lack of clear communication about money. Often, all a child has to do to get his parents to part with money is to ask for it. Parents should talk to their kids about money as comfortably as they talk about cricket or a trip to the mall. Children need to understand what their parents do for a living, and not harbour the illusion that money grows on trees.
Indeed, it’s very important for all parents to discuss and share their values with regard to money, what it means to them, and what they hope to accomplish with it. As a parent, you can spur your child to think by asking her what she thinks of money, and to explain its uses.
The hardest thing for you, as a parent, to learn—and perhaps the best thing you’ll teach your child—is to say “no”. Teach your child that it’s sometimes better not to have something you want, or to wait before you can get it. Say, “Yes, we can afford to buy this, but this is not the best use of our money”, or “I do not want to spend our money for this.” Appeal to her reason by explaing your decision.
Part of the reason children have confused ideas is that they often get mixed messages about the easy availability of money. There are four main drivers for this. First, that conjuring trick you do at the ATM. It really does seem the money appears magically and freely from an ATM or credit card. When your child is old enough to use the ATM, open a junior account for him. Let him spend money from there, and ensure he reads the receipts—it will make the ATM seem a little less magical.
The second reason kids get mixed messages is time—or rather, the lack of it. Most urban families today haven’t much to spare, and unfortunately, money becomes a substitute. The third driver is friends and peers. Your child’s friends can be a much more powerful influence than your family. And the fourth is advertising and the media. Despite your best efforts to instil good financial values in your children, corporates with enormous advertising budgets and pervasive campaigns will manage to tempt your child. The sooner a child understands how his parents think about money, the less mixed all those messages will seem.
Of course, it’s not just kids who are confused about money—grown-ups are, too! Financial literacy is Greek and Latin to many of in this era of economic prosperity. Often, earning money is not the issue—managing it is the problem, or—for an unfortunate few—a nightmare. Fundamental things get overlooked, such as figuring out how much life insurance one needs, prompting campaigns like “KILB” (kam insurance lene ki bimari). Many people find themselves in ensnared in debt at a young age, or in some other hot water because of bad money strategies. I have come across several people who can’t save, despite earning more than Rs 50 lakh a year!
An MBA from one of the IIMs or Harvard will not teach you how to manage your personal finances as much as the basics that you pick up at a young age. There’s no better time to teach your child the meaning of money than when she is in school.
Financial illiteracy is very dangerous to your health—not just financial but also physical wellbeing. How you live your life is key to what you teach your kids about money. One of my clients has developed a great way to teach his kids the virtue of patience. When they clamour for even something relatively simple, like a pair of jeans, he says to them that this week things are a bit tough, and they will have to wait for a few weeks. This despite the fact that this client is a real estate developer, and quite capable of buying not just the entire jeans store, but quite literally a mall). His children have adapted to this attitude, and have learned to wait. He has thus gifted his kids the invaluable ability to delay gratification. Far too many parents lack confidence in their own financial skills. Often, they feel the best they can do is to cajole their to save and to not spend too much.
Financial literacy basically means having a solid understanding of how to get money, spend it wisely, and handle credit. It means being able to distinguish between good, bad and ugly debt, and to live on a budget. It means protecting what you have, through insurance. It means understanding what kinds of risks you’re exposed to, how best to mitigate them, and how to invest. And last but not least, it means understanding how to use your money for the betterment of the world.
Improving basic financial education at the elementary and secondary school levels can promote financial literacy, and help young people avoid poor decisions which could take years
to recover from. Unfortunately, this aspect of education is not a high priority for educators and policymakers, including those who understand the problem. Financial literacy is not just a kids’ activity, but a major family issue. Just as extracurricular activities are important to a child’s overall development, schools and parents should recognize, financial literacy is arguably one of the most important life skills needed for a student’s long-term success in the world.
Financial literacy is financial selfdefense. It should be part of every child’s core curriculum.
Amar Pandit is a Certified Financial Planner and Director, My Financial Advisor
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