Make your children money-minded

A financial adviser gives parents powerful tips that will help them make their children savvy about money

“Mom, why don’t you give me pocket money? All my friends get pocket money from their parents.”

“Sahil, you should focus on your studies. Whenever you need something just tell us and we’ll get it for you. Leave the money handling to us.”

Big mistake

“Dad, I want to open a bank account of my own.”

“But Arushi, except for a little bit of pocket money that we give you, you don’t have any more money. What will you do with a bank account? It will be one more account for us to manage”

Bigger mistake

“Dad, I read in a book that we should invest our money wisely so that we can stay ahead of inflation. I think I should invest the money from my savings account in a Fixed Deposit. I have heard that Fixed Deposits earn a better rate of interest.”

“Harshita, you only have a few hundred rupees in your account. It’s not worth investing that anywhere. Whatever investing needs to be done, I am doing for you.

Disastrous!

Knowingly or unknowingly, consciously or unconsciously, or perhaps based on what we have inherited over generations, it has been engrained in our minds that money is the root of all evils. Though we understand that we cannot avoid dealing with money, we believe that we should at least keep our children away from this ‘evil’. And this mistaken belief is what drives our behaviour whenever our kids question us on money or want to deal with it themselves. We become so protective that we do more harm than good for them.

First things first

Is money evil? Is it so bad? Well, if it was so bad, why are you working for it? Money is not the cause of evil. It is only the ‘greed of money’ that causes evil. Let us assume that you are holding a kitchen knife in your hand. Now, if I ask you whether kitchen knife is good or bad, what will your response be? You would say that it depends on the intent of the person with the knife—he can use that knife to kill someone or as a kitchen tool. It is exactly the same with money. Money is neither good nor bad. It depends on the intent of the person holding it. Look at Bill Gates and Azim Premji and you would realise that money can be such a boon for the society.

Now, I never understood the logic as to why we should keep our children away from money. We are preparing them in life to earn and deal with money, but want to keep them away from it till they start ‘mis-managing’ it and start learning from their own mistakes. What an irony! I know that they will finally learn by making mistakes, as all of us did. There is no harm learning from one’s mistakes, but there is one thing your child would have lost if you wait till she makes money for her to handle it—and that happens to be the most critical element that makes the money grow—TIME.

The time leverage of INR 50 saved and wisely invested over 15 years is far more than the value of INR 10,000. The key is to teach your children early. And lecturing will not work. Get bank accounts opened in their names while you are the guardian. Their curious eyes must see the interest being credited into their savings account under their name. They must realise the power of the fact that their money can earn more money for them.

They should see their interest earning more interest for them. They must see time leverage in action in their own bank accounts. Once they absorb this concept that money is their slave, they will never have to be taught about saving a part of their pocket money. You will be surprised to see the changes in them. I have seen this with my children, and with most mature adults who were not aware of the power of saving early-on.

Every parent should do this

Every parent should keep in mind the following to ensure the future financial wellbeing of their children:

  • Irrespective of the amount, make sure that you give your child pocket money. This ‘earning’ helps them learn concepts like money is limited, that they must plan and spend, and they must save a part of the money they get.
  • They may start saving in a piggy bank, but sooner rather than later, open a bank account for them and get them involved in the process. Preferably take an online banking facility. Your kid’s bank account can be linked to your account and you can monitor it at any stage.
  • Show them the bank account statement—either online or a hard copy—which shows the interest credited. Do not worry about whether the amount is big or small; it’s the concept that has to be explained, and engrained in them. The concept is that their money just became their slave; it just earned more money for them in the form of interest.
  • Starting to save early is the single most important factor that will determine their wealth in the long run. If you have missed this train in your life, do not let your child make the same mistake. Tell him that he or she should try and save from his/her pocket money. This habit will go a long way.
  • Let them define their own saving target every month. The equation “Expenses = Income – Savings” is far wiser than the equation “Savings = Income – Expenses”. The former teaches you to spend after you save, while the latter inculcates the wrong habit of saving whatever is left after spending, which in most cases is negligible. Though technically same, there is a world of difference between these two equations.
  • Lead by example. Your child will follow what they notice you doing. If you are in the habit of saving money and controlling your expenses, it will not be difficult for them to follow suit.
  • Discuss money with them—openly and quite often. Money is not a taboo. It is a necessity of life. Its priority ranking comes quite close to oxygen. Teach them to deal with it properly. If they don’t learn to deal with money from you, and our academic institutes do not teach them, the chances that they will mismanage money are quite high. Do not leave this critical life skill to chance.

This was first published in the November 2014 issue of Complete Wellbeing.

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