Make your children Money-wise

The recent advertisement of Max Life Insurance on TV suggests that we prefer someone close and elder to us giving us advice on our investment and savings. We like to instill good monetary habits in all at early age including to our children. As parents, we generally take the responsibility to provide for children till they become major but then for their future leave them unguided. Thus, they are unaware of importance of savings or hardship of survival. Although it’s possible for us to meet most of our child’s needs and requirement from our regular cash flow. (At times this habit is not recommended) What we don’t have handy is the allocated figure attached to it. We may think that planning for education and marriage is sufficient to give a good stable life to our children but it is untrue. Our motto should be to guide the children from young age on benefits of savings and investments.

How do we teach our children benefits of savings?

a) Non Earning children – In India, an individual mostly starts working only in early twenties. Till then they are completely dependent on their parents for their monetary needs. So as a first step to avoid this, begin to inculcate need for earning in them at early stage. It could be a part time role at librarian, or a job of book keeping at local super market. If you have your own set up and can incorporate your child in it, it is best to give him a role at your office although not directly under you. It is necessary that first you adapt to the thought of them doing mercenary job rather than waiting for the right job. The motive is to create the feel of ownership involved in earning.   

b) Carrot Stick approach – You should use this technique to make children save in their own way for their desired gifts. Lets’ say, your child demands for an Iphone costing Rs. 55,000/-. You can ask him that you can sponsor the same only up to Rs.25,000/- the remaining needs to be earned by him either by doing small jobs at your home or by making some savings in his pocket money. Never habituate children of good gifts on scoring good grades.    

c) Explain the concept of Regular Savings- Teach your child the importance of regular savings and magic of compounding. If required make use of objects like “if you don’t spend on buying a new phone and save that money, you can buy yourself a new laptop in next six months” or “ if you want a new bicycle , I will deduct from your pocket money Rs 500 for next 15 months”. Also, giving them a savings account to operate on their own would make them more careful on their spending, fearing back lash on zero balance.

It is good to avoid the children think that you would fulfill all their demands unconditionally. Let them realize that if you are providing that with good lifestyle, it comes with a price tag. Make them financially literate and not dependent on you for all their needs.

 

Lastly, follow few simple steps to inculcate financial discipline in them:

a) Give a fixed monthly allowance to your children

b) Ask your children to save at least 20% of their allowance.

c) Open a savings bank account and start a monthly RD from their allowance savings.

d) Tell them to prepare their goal list and amount required for them. Tell them to how to achieve it without your help and regular savings.

Important Links -  

SEBI and NISM's have started a flagship program,Pocket Money to increase financial literacy among school students. 

http://www.nism.ac.in/index.php/financial-education

National Centre for Financial Education (NCFE), to measure the level of financial literacy among school students have started National Financial Literacy Assessment Test. For students in Class VIII - Class X

For this year's registration visit - http://www.ncfeindia.org/nflat


Regards
Saarthi Financial Planners
www.saarthifp.com 

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