Save for them, spend on them, but also teach them
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When I was a child, my parents gave me pocket money. I was told that if I wanted to buy something, I had to save money for it. Hence, if I wanted a doll, I would ask my father the price of the doll and ask him to calculate how many months I need to wait before I could buy it. That my father would wait a month and buy it for me himself, was a welcome surprise, but the wait helped a lot. What I have observed is that if we, as children, are taught the value of money early in lives, we imbibe the same and pass it on to our children. For instance, on my son’s 11th birthday, we presented him with an expensive gift that he was waiting for since he was 10. An iPod. Why did we delay the buy? First, you have to find out whether your child really needs it, or are you getting it to suppress a nagging child and relieve your guilt as a parent. We had three reasons for the delay in purchase—the gift was expensive and budgeting for it was important for us; we felt he was too young to have it at the age of 10; and delaying the purchase helped us know if he really wanted it. It is important to delay gratification to know if a want is a need and whether your child values it.
Next, you should teach your child how to prioritize spendings, and that starts from you. For instance, kids often see parents argue about whether they need a washing machine, or a new fridge, or a television. As parents often we need to choose and prioritize accordingly. Planning when to buy, how to buy, and budgeting for a goal will only make achieving the goal a reality. If we discuss the pros and cons beforehand, arriving at a conclusion can become less elusive. This will also inculcate discipline and make the buyer realize the need to evaluate and analyse before simply splurging.
Remember that you will at some point have to talk about money with your children and for that you will have to be ready with details. Sample this: According to a T. Rowe Price Survey (2014), 72% of parents are concerned about how the cost of things are moving up, and consider education goal planning as an important goal. Yet, many do nothing about it. The reason for this, according to another survey in the UK (by Teachers Assurance, a financial services firm) is that 65% parents cannot afford it.
My son once overheard a discussion between me and my husband about the savings we are creating for his education. I discussed with him why it is important to save for his graduation costs considering education inflation is growing by 15-25% per annum, and that this is a growing concern among parents. We had to tell him that if we did not have a plan to meet the costs, then we might need to borrow with high interest rates or forgo his pursuit of interest for something less interesting for him and more affordable to us. In short, if we would be unprepared, we would be busted.
You can pass on such money-related information by introducing small concepts in a fun way, sometimes as a quiz or a real life money example. Another way would be the work-and-earn method. Many parents pay for household chores done at home. The chores can be taking your dog for a walk, doing laundry, small clean up tasks, helping with guests and more. There is a price tag for every chore; it is logged, and paid at the end of every month.
You should also be aware about kids’ perception of financial roles so that both parents have good command over financial information to impart. For instance, a survey showed that when children between the age of 15 and 21 years were asked, who is in charge of the family money, 37% said mom, 32% said dad, and 30% said mom and dad. More importantly, when it comes to seeking money advice, 58% respondents went to their mom. Also remember that your spending habits get passed on to your child. If parents often purchase products online, their kids are likely to follow and imbibe the same practice when they grow up.
Remember that the most important and gratifying gift to your child is financial literacy. Though the practice is not as prevalent in India, such discussions open up the child’s perception of money, savings and financial behaviour. Involve your child’s thoughts when you speak with your financial adviser. Financial literacy is now part of the curriculum in many schools and topics on portfolio management and investment are being taught.
Lastly, teach your child to take responsibility through small things. For instance, just two months after our son’s birthday, we were chatting over dinner and he was playing with a robot called Furby. A Furby is an electronic toy that resembles an owl-like creature and has gained popularity because of its inherent intelligence of developing language skills. The Furby develops from speaking furbish (gibberish) to language skills you converse with it by learning the words partly. My son knew his chances were thin, after the expensive birthday present, but still gave it a try and showed us the Furby on the Internet. He demonstrated how one has to take care of the Furby, bathe it, feed it, and even give it health checkups. the toy was not very expensive, and we thought it was the best way to inculcate some responsibility in our son. So, we bought it for him. He still gives it a bath and feeds it after school. Spending money on your child’s needs in not the only responsibility. In fact, a bigger responsibility is to teach them the value of money.
Dilshad Billimoria is director, Dilzer Consultants Pvt. Ltd.