Financial literacy is a term that no one takes seriously. Every one of us seems to be afraid of the world of money and business. We all do different things to make money to fulfill some dreams and also to save enough for the times when we cannot earn money but will live long.
With modern medicines, the lifespan after retirement seems as long or longer than the period we work for a living. Thanks to this factor plus the withering away of the joint family system, money has taken on a role of high priority in all our lives.
Today’s parents are very concerned and caring about their children. They want to make sure that the children do not go through the pains they went through.
In this process, the umbrella of protection hides the weather from the children.
They know that if there is a financial loss, their parents will make it up. If they want to spend a few thousand rupees on a meal with friends, their parents will fund it. They do not know failure. They do not know how to cope with adversity. And in all this protection, we are forgetting to give them the one big ammunition they need in their arsenal-
We hear stories of how people have been led astray by dubious advice or have made wrong investment choices and lost money. This has happened to many of us. This is the mistake that we must help our children to avoid.
Very often, we are so busy earning money and coming from a background of modest living, every penny saved is sent in to safe havens like bank deposits. And then one day we buy a house. Unless we are surrounded by people who invest in stocks or mutual funds, it is unlikely we will venture in that space. Ultimately,
we end up buying more property and also perhaps lose some money in some dubious ‘word of mouth’ investment.
Teach the children about ‘inflation’ rather than talk to them about ‘good old days’ when a movie ticket was one rupee. Tell them to run the household. Make them play money games. Today there are several online games as well as board games available that help teach the children about money and about investments.
Let the children learn about money. About risk. About compound interest. About the Rule of 72. About stocks. About fixed deposits. About risks.
Teach children financial sense and responsibility. Don’t let them think money is easy. Set them to work for money. In India, we send them for ‘summer’ tuitions rather than summer job. While you may not be able to avoid this, reward them for ‘work’.
The other important lesson is that when your children start working, take control of their pay check. Even if you do not need their money, make sure that they realise and feel that their money is wanted and needed at home. I have seen so many children go astray because the rich parents did not bother about this.
Indian children are unfortunate that our primary education system does not equip the children with the tools they need in real life.
It is a devolved responsibility on the parents.
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Author: Balakrishnan R
Balakrishnan is an Investment Analyst. His working career spanned banking, industry and finance. He was part of the founding team members of CRISIL. He also helped Malaysia set up their first credit rating agency. He also worked with DSP-Merrill Lynch as Head of Research and with First India Mutual Fund as CEO. He writes regularly for Moneylife magazine and for Deccan Chronicle)