How about an unusual gift on Father’s Day? Emulating his financial habits4 min read . Updated: 17 Jun 2018, 08:37 PM IST
Low interest rates and returns from traditional investments, such as fixed deposits and post office schemes, means the older generation needs market-linked options, such as mutual funds
Iwould like to thank my father for giving me the right financial lessons that led me to become financially independent. Way back in the early 90s, there was no internet banking and one had to physically go to the bank for depositing cheques, withdrawing cash, and making demand drafts. Since my college was close to the bank, all the bank work was my duty. Even at that time, when I was 16 years old, the last thing I wanted to do was go to the bank, especially since I did not know where to deposit the cheque or procedure to get a draft made. For all the entrance exams too, my father was very clear—if you want to write the test, you need to do the groundwork yourself to apply for the same. While I was really annoyed with my father at the time for making me do all this, when I look back, I would say these were among the best things he made me learn independently. When I got my first salary, he was the one who guided me to invest it into Public Provident Fund. Of course, at that time, parents didn’t have to tell children to save. It was ingrained in us. From my side, more than material presents, the gift of financial knowledge is what I gave my dad. Of course, I could do this because I am a financial adviser. But you too can do this and should do this.
A majority of our father’s generation are risk-averse investors. But with the falling interest rates and traditional investments like endowment products giving sub-optimal returns, it has become necessary for the older generation to have some market-linked instruments in their portfolio.
I routinely meet people at sessions who tell me about how their father advises them against investing in mutual funds because of non-guaranteed returns. This is mainly because of lack of knowledge of the working of such instruments, which is not surprising given that the avenues to invest during our father’s working years came with fixed returns and most of them lost money dabbling in stocks. A good way to get them to experience the markets could be through an SIP in a balanced fund. If they are adamant against doing this, you could start an SIP with your money but in their name.
Having financial conversations with your parents is important. I have come across older people investing in company fixed deposits or falling prey to chit funds, for high yields on these products. Caution them against ponzi schemes like multi-level marketing schemes, and bitcoin-related schemes.
Some of the older people still depend on others to make bill payments physically and are not comfortable doing it online. Automating payments can simplify your father’s financial life and you should help with the online set-up.
Another important aspect of financial knowledge is to do with Wills. Only a small number of Indians make Wills. Educate your father on the importance of having a Will so that he can pass on his assets to whom he wishes. I recently came across a case where the children were disputing the donation to their father’s favourite charities. A Will is a good way for your father to leave behind for causes that he believes in, apart from deciding how he wants to split his wealth among family members.
Finally, make your father realize the importance of sharing all information around their finances with your mother as well since in that generation most women were not involved or included in financial decisions. Help them create an inventory of their financial assets that also has details of the relationship manager, agent or broker. This should be shared with their spouse. Women tend to face a lot of difficulties in handling money when they lose their spouse, as they were not managing money and don’t know where to start. They are often negatively influenced by relatives.
When a friend’s father realized that his time was limited, he made a handwritten list of all assets and ensured that all nominations were in place apart from explaining to his wife about their finances. After his death, his wife was able to have the assets transferred to her name within a short period. This also meant that she was not dependent on other family members.
These days, parents seem to shield children from money matters and not teach them to be financially independent. So much so that I regularly meet millennials who are financially dependent on their parents despite earning well. Remember, children generally emulate parent’s spending and saving habits and it would bode well for you to pass on your parent’s legacy of spending cautiously and saving well for the better things in life, to your children as well.
Mrin Agarwal is a financial educator, founder director of Finsafe India Pvt. Ltd and co-founder of Womantra