Teach Them Young

Being a mother of a two-and-a-half-year-old daughter is not easy and I often grapple with the question of how to provide the best upbringing to her. Though my husband and I, like most other parents, strive to provide everything for her, sometimes it seems to stand in contrast with how I grew up as a millennial.

My generation was accustomed to leading a modest lifestyle as shopping and eating out were restricted and other luxuries were not always available. Education was the biggest factor that our parents emphasised upon. This kind of lifestyle automatically helped instil financial prudence in us and we realised the value of hard work early on.

The life of today’s generation is, however, very different from ours. With families having double income and better financial stability, most of children’s wishes are promptly fulfilled. That’s good for them, but it sometimes worries me. Will our children appreciate the advantages that are automatically available to them? It also poses a challenge for parents on how to teach children the value of the effort that goes into earning an income and the distinction between needs, wants, and wishes? Since their experience is more or less smooth, will they be able to handle rejection, which is a reality for most in some aspect or the other? Conversely, how will they respond to validation.

Over my decade-long career in wealth management, I’ve realized that while I can’t predict the future, I can prepare for it. Here are some strategies that can help parents plan for their children and inculcate financial values in them:

Start Investing Early: It’s never too soon to begin planning for your child’s future. Did you know that you can open a bank account using just a birth certificate? Whether you choose a lump sum or a monthly investment plan, remember that the power of compounding will work well if you start early.

Make Children’s Investment Independent Of Yours: Avoid imposing your financial risk tolerance on your child’s investment portfolio. If you start early, time is on their side, allowing for a potentially higher risk tolerance in their portfolio. Don’t forget that education costs are spiralling at a much higher rate than inflation.

Review The Portfolio Regularly: It is important to review your child’s financial portfolio every year. This will ensure that it remains on track. Reviews are not about making frequent changes but ensuring that the investments in the portfolio remain aligned with the original goals. Also, investments like mutual funds have to be reassessed to make sure their investment strategies are the same as they were at the time of buying.

Be Open: In India, individuals often tend not to discuss financial matters with their family. Even spouses are unaware of the financial details in a lot of cases. It’s important to be transparent about finances, not just with the adults in the family but even children. It’s crucial for them to understand not just what they can have, but also what they can’t. Help them understand the difference between needs and wants, and set clear family boundaries and expectations.

Start Teaching Them Early: Set a budget for them early on. That will help them make their own financial decisions—whether to buy a toy or an ice cream. It will also help them realise the value of money. You could encourage their saving habit by offering to match any saving they do.

Rewards Over Penalties: Research supports that rewards foster better behaviour than penalties. Reward your children for doing small chores. That will teach them about initiative, resourcefulness, and inculcate financial independence.

Make Them Do Charity: Teach your children to give back to the community by donating a part of their allowance or by engaging as volunteers for social work. This will help make them empathetic over a period of time. It will also build a sense that they lead a life of abundance and develop a sense of gratitude for what they have.

Children learn from observing their parents rather than listening to what they are told, so try to practise what you want your children to follow. Ultimately, the best investment you can make for your children is spending quality time with them, which will enhance your parenting experience and help them cherish their childhood memories later.

Disclaimer

The views are personal and are not part of the Outlook Money editorial Feature.