If you want your children to inherit true wealth, make them financially literate, says Amar Pandit
I like this quote by American columnist Bob Talbert: Teaching kids to count is fine but teaching them what counts is best.
The quote is pithy but it gets to the core of teaching financial responsibility.
What parents forget
If you look around, parents and teachers focus a lot on teaching mathematics -- they send kids to Vedic Maths and Abacus classes to enable them to have numbers at their fingertips from a young age.
Parents also enrol their kids in drama, dance, singing, karate and other classes. But how many of us actually remember that when our kids enter the real world, the first thing they will confront is money?
Amid all the classes, we forget an important life skill -- financial literacy.
Many of us probably pay our children pocket money but we don't realise that this is not teaching them about the value of money or how to manage it.
Some schools touch upon economics or basic finance courses, however, no school is equipped to analytically teach financial literacy to your kids.
What exactly is financial literacy?
It means understanding:
- Income, expenses and savings
- Assets -- real and financial -- and liabilities
- Risk management, insurance and its purpose
- Investments and how to make money work for you
- How to handle situations such as disability, starting a business, inheritance
- Wills, trusts, and intergenerational wealth transfer
Money lessons at home
Most parents might touch on the concept of piggy banks and savings early on, but are usually reluctant to discuss the topic of money and family finances with their children.
In the Indian context, money is a touchy issue and in terms of discussing sensitive topics, ranks as high as sex education. Thus, it's not surprising that most parents are loath to discussing it.
The earlier the better
The best way to teach kids about money is to let them deal with money early on. This is because as kids grow into teenagers they develop strong habits, which become hardwired because of peer pressure and the external environment.
This particularly happens beyond the sixth grade, when children face severe peer pressure. They want to buy gadgets, branded clothes and do many things that their friends are doing.
Telling them to act sensibly and responsibly at this age might be a tall order if you have not inculcated good habits early on.
They need to understand the power of money and the consequences of their decisions. It's far better that they commit mistakes at a young age with smaller amounts than commit financial blunders when they grow up.
They will thus experience handling their own money and making decisions around it. I believe this is a strong competitive edge that you can give your children for their future financial success.
When's a good time?
In my experience, kids between the age of 5 and 12 are receptive to financial literacy. Hence, it is best to start between 5 -- 12 years of age. This is not to say that children above 12 do not appreciate financial literacy.
They certainly do, when the content is interesting, but it takes a little more time for them to understand the importance because they develop certain habits and are consumers by then. There will be constant demands, or emotional blackmail that most parents will be exposed to at some point of time.
You must understand that it's natural for them to sometimes behave like this and is a part of growing up. The best part is that you can still teach them to be savvy savers, spenders, investors and givers.
Money lessons for kids
Common sense and some practical ideas is all you need to have to start teaching your children about money. The key learning points for kids should be:
- Having healthy values about money
- Setting goals and priorities
- Thinking and making prudent choices
- Not living for the weekend: delay instant gratification
- Understanding the virtues of hard work
The 'how' part
There are often many real-life situations when you can teach your kids about money, considering that money is an integral part of our daily life.
Any time: Whenever you buy groceries or petrol or even pay school fees, you can teach children. If you have taken your son to an ATM, and he insists on pressing all the buttons like most kids, take this opportunity to discuss a few points about ATMs.
Special time: You can always set aside time to teach them the basics of money management. If you cannot, then you must seek professional help.
It is far better to spend some money on financial education than allowing your children to develop irresponsible and dangerous money attitudes, behaviours and habits.
Finally, it is the parents' responsibility to control what children buy and how much they spend. If parents fail in this critical test, no amount of money will be enough for their kids to spend when they grow up.
We must realise that it is our mistake when we rush off to dress them in so-called designer outfits or spend several lakh or thousands on their birthday parties without giving an iota of thought on the impact this has on the children's minds.
Don't forget that even though you might not be teaching your kids directly, they are constantly learning by just observing you.
Amar Pandit is an engineer-turned-financial planner, who run HappynessFactory.in, a unique fintech platform