Sunday, January 10, 2010

Money matters and your child - Part II

In part one, I wrote why finance management is important for children. I was then pondering as to how could we as parents undertake this task of giving our children good financial education.

I was reading this wonderful book Rich Dad Poor Dad by Robert T. Kiyosaki. It was quite enlightening. He stresses the importance of giving a sound financial knowledge to children right from school. According to him, education is important but he says that the advice that he got from his own father whom he calls as poor dad was the standard one which we all say to our children from the beginning - study well, get a good job and live comfortably. But most of the time the author says that though his dad was a professor and earning a good salary, all that he was earning went into tax and to pay the loan taken towards home, car and other luxuries. In other words he was forever poor.

Whereas his friend's father who was running a company would always advise him to get a good education, try and own a company instead of working for it. Always try and build assets and not liabilities.

I feel in Indian culture from early ages taking a loan was considered to be a social taboo while it has changed in recent years. Most of them adhered to the saying - stretch your legs only till the length of your bed; in other words live life within your means and don't go beyond.

Who does not remember the first piggy bank that we all used to put our money into? We would never think of spending any of it. So I believe the first step is to inculcate in our children the habit of saving. Saving for a rainy day always helps.

Next the simpler the life we lead the better. Here we as parents have to practice what we preach. Discussing with our children the income and expenditure on a broad basis helps. When we take decisions making them the part of our discussion also creates awareness. How much information and in what way we give it out to them depends on the age of the children.

It would be a good idea if we ask our children to maintain a diary where they make a note themselves the day to day expenses that we incur.Then they know how and on what money has been spent. They will also then get a fair idea and can then categorise between money spent on necessity, comfort and luxury.

As they grow old enough to understand the nuances of finance, one can explain how credit and debit cards work. I remember this incident when one of our cousin's child was asked as to what he would do when he grows up. He answered that he would just go to the ATM, withdraw the money and hence there was no need to work.

As and when they start working, teaching them various ways to build assets with the money that they earn might lead one fine day to the culmination of all the financial education that we as parents have been teaching them from childhood.

I would also like to hear from you parents as to how you handle this situation and the solutions that you have tried which might also help me.

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