Your duties as a parent to raise a financially responsible child include imparting the child with sound financial knowledge as well as yourself primarily becoming a role model itself. Parents have the greatest influence on a child’s habits and financial behavior above work, experience, and financial education in a school or college. Children grow up observing your deeds. Unknowingly, you are a role model in many areas of your child’s life. If you are a spendthrift, your child too follows suit. Lead a life as an example for your child.
You become what you think about most of the time. Passion for life, work, business, and making money comes from within. Help your child discover its passions. Ask your child occasionally what it wants to become as it grows up. If your child evinces a passion for business, encourage the child’s business initiatives without interrupting its education or at least don’t discourage because entrepreneurship is not for everyone. If you think the remuneration is bad or it would be laborious for the career that your child likes, speak about those difficulties and guide your child appropriately. Encourage it to keep dreaming what it wants to become. Encourage the child to be self reliant soon in its finances. Teach the child that time is money. With proper time management and acting wisely, you can shape and control your own future. All those rich people who have amassed wealth on their own have rather done it by aspiring, by dreaming their destiny, and working towards it day by day.
You can’t mint money but can multiply money by saving a part of your income by living within your means and investing the savings wisely. Give hands-on training whenever and wherever possible; indulge your child in your businesses. Start by giving pocket money. Children love getting pocket money or tell me which child wouldn’t love? Keep an eye on what they do with the money you give. Tell your child what it can do with the money; spend it away right now or invest and multiply it to achieve a financial goal later. Involve your child as your assistant in budgeting your household finances. Ask the kid to maintain the cash/expenses of the household. Encourage it to save, to have a financial goal. Step by step, teach the child investment avenues and the ins and outs of investing in each asset class. Let the child know the power of compounding. Inform the correlation between risk and return, the safety and risks of each asset class, how to take calculated risks, and particularly the ups and downs of the economic cycle.
Your responsibility as a dutiful parent doesn’t stop with encouraging, advising, showing investment avenues or just being a role model itself but also in monitoring your child’s performance in its early days of financial activities. See if the child is right on track or not, and put back the child on track if you think it is deviating. Once you feel your child is perfect with its finances, stay away but still with an eye until the child is progressing on its own.
Wisdom is learning from others’ mistakes and experiences. Encourage the child to read as much books as it can. Books are the way to earn wisdom from others’ experiences. Share the details with your child about where you went wrong in your personal finance and where you are successful and how you made it. You have to be your child’s friend when it is in its teens for it to openly discuss and clear all its financial doubts.
Okay we have seen our responsibilities as a dutiful parent. Now in our endeavor to give some nuggets of financial wisdom, the 6 financial tenets to impart financial literacy to your children. Teach them as it is.
It is interesting to note that rich people focus more on raking in more money than living frugally or anything else. Instead of trying to live within financial limitations, try to develop skills and focus on building up multiple income streams. World has become small. You have unlimited opportunities on the Internet. I remember the famous words by Charlie Munger here: “The first $100,000 is a bitch.” “Making the first million is the next big hurdle.” Making the first 1,00,000 from a standing start with no seed money is the toughest part and multiplying it 10 times to a million is the next biggest hurdle. Once you cross the first million, it is like rolling a snowball; the compounding effect will do the magic after that.
Whether you earn a few hundred bucks or a few millions a month, you need to budget your income. Just planning the income and expenditure on a plain paper and pen will do or there are many tools for budgeting that you may take help of to manage your finances in real time. Budgeting helps you ensure that you are living within your means. Without budgeting we are tempted to spend far too much, especially when we are more dependent on credit cards for our purchases. With budgeting you are in total control of your finances. Budgeting your finances and implementing it will plug the loopholes in your finances through which your hard-earned money finds the way out. It gives you a fair idea on where you will stand at the end of the month or at the end of the financial year, whether you can save a lot or are going to spend a lot. Furthermore, it will help you equip yourself for financial emergencies as well as it will help you to keep out of debt.
You can’t become rich if you spend every penny you earn. Furthermore, spending less doesn’t always have to mean living less but a few simple changes and some planning to avoid paying more and thereby saving money even during tough times. Exercise self-control. To begin with, you should compulsorily save at least 5% of what you earn by living within your means. Open a bank savings account. Stash away that 5% of your income plus whatever you are able to save on top of that. Drop by drop makes an ocean.
Credit card companies will lure you at the college campuses with attractive offers. Many of you will fall prey too and spend recklessly on credit cards to repent later. The exorbitant interest rates on credit cards can lead you to a debt trap. Unless you have the means for repaying a debt, don’t go for it. The danger of debt comes in when money is unnecessarily borrowed or if money is borrowed without the means to repay it. It can ruin your credit history and render you sleepless nights. It can suck all your blood and energy in the form of interest. There is nothing wrong in going for needs but danger arises if you go for wants on borrowed money. Spend responsibly and avoid the pain of going into debt.
Unless there is a target and you strive to attain that target, there is no meaning in life, and you are going to remain just an Average Joe. Striving to attain financial goals throughout your lifetime is an important part to building wealth. Identify long term and short term financial goals and write them down. Thinking and visualizing your goals as you fall asleep and as you wake up in the morning will embed them deeply in your mind. Mind is an interesting phenomenon. The subconscious mind makes you work towards what you dream about all the time. Prioritize each financial goal. Determine how much you need to earn and save to reach your financial goal. Start working to achieve the goal. At the end of each designated period, track your progress. It just takes some sincere dedication and self motivation to make each goal attainable and reachable.
Money doesn’t grow on trees but money makes money. You need to invest and compound money to become rich. Another interesting fact to note is that the wealthiest people around the world own businesses. The barometer to measure their wealth is the stake they own in their businesses and its market value. A businessman makes more money than being an employee. Figure out which business fascinates you more and try to know all the ins and outs of that business. Try to learn the basics of accounting and how to look at balance sheets, profit and loss account, and cash flow statements of businesses. Now look at owning fractions of one business that you love the most at discount prices. This strategy alone should make you rich over time. Stock market is not a taboo. Get introduced to the stock market as early as possible.
Children, one of the things that you get in abundance throughout this world is free advice. Build your life on solid proven principles. Don’t heed to any free advice because nothing comes for free. Free advice could ruin your finances. Be rational in your financial decisions. Don’t budge to anyone’s compulsions. If you are determined in your financial decisions, don’t bother about what others might think or say about you. I remember Bill Gates’ words at this juncture: “If you were born poor it’s not your fault; but if you die poor, it’s your fault.”
Parents, though I had business and investment instincts and aptitude towards money matters right from my childhood, it wasn’t nurtured or encouraged. I was told all the time that securing a good government job was the best way to lead a peaceful life instead of business or entrepreneurship, which I didn’t heed and budge all this time. However, I don’t like repeating that to my kid and I am bringing up my child as I have detailed above. How about you? How are you faring in imparting financial literacy to your children?
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