Make Your Child A Savvy Investor
- JWB Post
- November 24, 2015
After he lost money in the Harshad Mehta scam in 1992, Jayaram P.D. stopped investing in stocks. “Staying away from stocks was a terrible mistake because I lost the opportunity to build wealth,” says the Malappuram-based bank manager. He can’t turn the clock back, but Jayaram has made sure that his teenaged daughter Aparnna doesn’t repeat his investing mistakes.
He has introduced Aparnna to the basics of banking and encouraged her to learn about financial concepts and investment products. Two years ago, she topped the South zone in the National Financial Literacy Assessment Test (NFLAT). The exam is conducted by the National Institute of Securities Market (NISM) for students of Classes VIII to X and tests basic financial awareness. Now 15, she already knows about the different types of insurance covers and how mutual funds work.
In Bengaluru, children listen with rapt attention as a teacher explains to them the benefits of budgeting and saving. Nothing exceptional about this, except that the teacher is 18-year-old Neha Chaudhari who topped the Western zone in the NFLAT exam and now holds money management workshops for children from low income families. “I hope to inculcate sound money habits in these children through the Money Tree initiative,” she says. She has even co-founded a company that is developing eco-friendly water sprinkler systems.
Neha’s parents Rajendra and Monica regret the bad financial decisions they made. “We lived in a rented house, when we could have easily put that money in an EMI and built a long-term asset. Both of us had all our savings in bank deposits when we could have diversified some portion into equities,” rues Rajendra. “We had no one to guide us but it’s heartening that Neha won’t repeat our mistakes.”
Aparnna and Neha didn’t pick up their money skills at school. Financial literacy is still not a part of the school curriculum. “Money management is an essential life skill. A course on financial literacy would help the child understand its importance early,” says Charan Singh, RBI chair professor at IIM-Bengaluru. A small beginning has been made with the CBSE partnering with NSE to teach financial literacy in schools. The course–Financial Market Management (FMM)–will be taught to students of Class IX and X.But it is a vocational course and not mandatory for all students.
If the purpose of education is to prepare a child for the future, personal finance cannot be left out of the curriculum. However, our education system is not geared to impart financial literacy. It teaches our kids science, economics, humanities and mathematics, but doesn’t prepare them for the real world. What comes out of the assembly line are professionals who earn well but have low money management skills. Even IIT grads, software engineers and those in the financial services sector are all at sea when it comes to investments, tax planning or saving for retirement. They learn their money lessons the hard way by burning their fingers, which can dent their financial future.
What parents can do
In lieu of schools, children have to rely on their parents for financial guidance. Besides teaching them about the birds and the bees, you also have to teach them about SIPs and EMIs. For parents, this can be an opportunity and a challenge. Children tend to trust their parents and will imbibe any habit you instil in them at an early age. If a child grows up learning financial prudence, he will become a better investor and smart spender when he starts earning. Ghaziabad-based Anirudh Roy is a diligent saver and avid nvestor. Helped by his father, he has already put about `30,000 in mutual funds while another `20,000 is in bank deposits. “I am sure he will be able to take smart financial decisions when he starts earning,” says his mother Sunanda Roy . However, not all parents will be able to give their child a headstart because the advice they proffer might be flawed. “If an individual has had a bad experience with an asset class or an investment product, his views about it will be biased,” says Abhishake Mathur, head of investment advisory services at ICICI Securities. Other parents are uncomfortable talking about money . “Culturally, we are taught that at a young age we should not be talking about money . But in the real world, a lot depends on how we manage our money,” says Aashish Somaiyaa, CEO, Motilal Oswal AMC.
Take baby steps
Money lessons should begin with teaching them the importance of saving. It is important to teach them how budgeting can help live within your means, that saving is rewarding and about the magic of compounding.
It is not necessary that all lessons are about managing money directly. It is also about inculcating habits and the right attitude. Prudent use of resources, whether it is electricity, water or food, spending carefully at a shop and separating needs from wants are also key lessons for your child.
Subrat Mohanty, Senior EVP at HDFC Life Insurance uses an innovative technique to teach saving lessons to his 6-year-old son. “If he does two chores every day–watering a plant and keeping his things back in place-he gets `10. So he understands the concept of earning and how savings can accumulate over time,” he says.
“Gamification of concepts and storytelling can be a great way to break down complex concepts to a small kid. Also, it ensures the lesson stays with him for long,” says Mohanty. At the Kidzania entertainment parks, children get a taste of how money works in the real world when they convert their tickets into playmoney. The kidzos can be used to buy stuff and pay for rides. “They can even work at the Yes Bank ATM inside the park to earn kidzos,” says a Yes Bank official.
Srikant Bhagwat, Managing Director and Principal Advisor of the Bengaluru-based Hexagon Wealth Advisors has been promoting an interesting concept among kids called `The Triple S Method’. “Kids are told to budget their pocket money under three heads–Spend, Save and Share. The ratio is left to their own discretion. But the rules are that whatever is `Spent’ is gone; whatever is `Saved’ the parent doubles with their contribution and it goes away into a mutual fund; and `Share’ or charity will get them returns not in a monetary sense but in the form of lasting joy,” explains Bhagwat.
Can money talk be a problem?
Some people argue that making financial literacy as part of the school course will put off children who will see it as a chore.Others say that money talk at this stage could skew the child’s value system where he starts equating wealth and prosperity with good and desirable. Vikram Kuriyan, Director, Investment Lab at the Indian School of Business, Hyderabad, doesn’t think it is a great idea to focus children’s minds on money . “However, lack of knowledge could lead to their exploitation in future. Education is an effective antidote but it must include an ethical component,” he says.
The article was first published here.