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Friday, August 3, 2012

Teach your kids to manage money (Part-I)

Are Kids capable of managing money?

How many times have you been surprised by a certain response form a child? I am sure that there may have been numerous occasions when you might have experienced that children are much more smart and intelligent than most of us truest them to be. They can do unexpected things, and then can do them surprisingly well. Why? Because they have a mind which can think positive and does not carry any restrictions, fear or boundaries in their thinking process. These fears and boundaries constrain so many of us from achieving great results. 
Well, if that is the case, never ever think even for a moment that they cannot manage money better than what you do.

Why do we not allow Kids to manage money?

There are two major reasons that i see why we do not normally allow our kids to handle money:

1) In most parts of the world, and especially in India, we traditionally keep children and money apart from each other for the major part of their growing and learning years. Probably, because money has not been considered such a "good thing" by our parents. In one of my earlier posts - Yes, Money can buy happiness :) , i explained that how money is a dead element and is neither good or bad. It depends on the person who is possessing it. So, as long as, your children are brought up in a morally and ethically sound environment at home, be assured that they will make the best use of the money that you ask them to handle. 

2) Add to this, the second major reason for the kids not managing their money is the issue of money management or personal finance not being taught in our schools and colleges. While schools do teach the concepts like simple interest and compound interest, shares and dividends, they never go on to show the impact and importance of implementing these concepts in their own lives. 

Because of both these reasons, our children go on to start their jobs and families and lead their lives with only theoretical knowledge about money and no idea on how to leverage that knowledge. Nothing different happened in my life. Well, later on, i went on to acquire the practical aspects of implementation of this knowledge is a different story that you would read in ore detail in my book "From Rat Race to Financial Freedom". I was one of the rare fortunate human beings who accidentally got into experiencing, reading and writing a lot of stuff around dreams, financial freedom etc, but that is not going to happen for most of us and our kids. The only way this will work out with our kids is by giving them deliberate exposure to this knowledge.

What if i can leave a big chunk of money for my kids ?

Many of us work hard to earn money. When i asked some of my friends as to what will they do with so much money at the end of their lives, many of them had an expected answer : " We will leave this for our children so that they can enjoy their lives" after we have enjoyed ours. I can understand the love and affection for that the parents would typically have for their kids, but do you think that the children would be able to sustain this inherited wealth and put it to right use, unless they know how to invest, manage and grow their money? Almost all the studies conducted on this topic has shown that 95% of the inherited wealth is lost within 10 years of inheritance, and the biggest factor responsible for this has been that the inheritor had no idea how to manage the inherited money. In most such cases, the inherited money either got invested incorrectly, or was lost in lottery or spent on unwanted luxuries, or was plainly outnumbered by the inflation monster. So, more important then collecting money is an effort to learn money management and money investing

How can i help my kids learn money management ?

Years would just fly by before you know it. By the time you decide to be doing something with your life, your life would have reached to a point of no return. You may decide to be different but this happens to more than 90% of the people in this world. Do you think something different would happen with your kid's life, unless you teach them something about money which you were not taught at that age? No, their life would be the same as yours. It has been said very wisely "It is insane to keep doing the same thing and expect different results".

So, start teaching your kids some fundamentals about money, have them open their own independent bank accounts, tell them the concept of bank interest, savings account, fixed deposits, compound interest and its power, give them monthly pocket money and then let them decide what they want to do with their pocket money - how much they want to spend vs how much they want to save every month. Show them how their money is growing in the bank and show them specifically when bank credits them interest, and then what happens to the interest, and what can happen if it is allowed to grow with time leveraging. Now a days, it is so easy to show all these things online to them. 

You got to take these steps when your child is still at a very young age - much before they are burdened with the pressures and responsibilities of life. If you have not done some of these things and your child is more than 2 years old, you are already late. You are late, but not everything is lost. You can recover. You can take a decision to start doing something about teaching them basic money management.

I know that some people would like this post, some would feel happy about it, some would also share it with their friends but what next? I am not sure how many but i am sure some of you would act now !!. Because knowledge without implementation is as good or bad as having no knowledge at all. Don't just read and appreciate the post. Act today..time is running..

This was Part-I of the post. In the next part of the post (Part-II), i will share with you as to what all i feel you can teach your child at different age groups so that the child learns money management in a disciplined and incremental manner. All that will be based on my personal journey with my kids.

Don't just leave money for your Kids... Teach them how to manage money

Happy teaching !!

Cheers !!

Manoj Arora

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