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The objective here is to instill financial discipline

In the realm of financial protection, times are always unprecedented – even if you had a Time-Machine! If my daughter was the “Time traveler” imagined by H G Wells, a two-decade fast forward could give her a peep into her financial condition then, assess gaps, come back to the present and take corrective action to secure her future. While we have not yet mastered time travel, there are smarter and simpler ways to achieve the same objective.

Everyone has a unique approach to parenting. The objective however is simple usually includes assistance in transforming a dependent learning child into an independent thinking adult. Amongst other things, learning to deal with money is an essential component of this process. I have shared the approach that we as parents have embarked upon. We want our kids to cherish their childhood. At the same time, we are also keen that they understand MONEY.

Money sense: This seemed difficult to inculcate to start, especially in an environment where basic needs are assumed to be available. However, growing up in a country with a savings culture resulted in a piggy bank as a birthday gift early in life. As my daughter graduated from school and moved to Class XI, we encouraged her to take public transport to go to school which was 6 km away. We also used the opportunity to open a bank account for her and gave her some pocket money to manage her daily travel spends. Apart from giving some responsibility, this enhanced the savings culture with all savings getting retained in her account. We now helped her open a Public provident fund account where all the savings could flow.

Own a budget:  A family holiday allowed us to hand over the planning and budgeting reins to her. This motivated her to research all our holiday activities, stay & food and develop the concept of what value we get for the money. This experiment aided learning in the weeklong adventure for her and was akin to gamification. Moreover, treating a teen as an adult was a good experience for both of us. As a beginning was made in enjoyable circumstances, it motivated us to advance the journey. We have nudged her kids to seek inputs from us and make a household budget for July. Based on what she comes up with, we plan to give her an upper cap and let her execute the budget through the month. The savings if any would go to her savings and PPF accounts.

New money formula: I have counseled my niece who has just started earning and is living on her own in a new habitat. As a person who suddenly has “My own money” in the wallet, it was tempting for her to enjoy the independence of blowing it all up. I suggested that she indulge the thought with a change in the money formula. “Income-Expenses=Savings” got converted to “Income – Savings =Expenses”. She agreed that sounded good and encouraged savings without penny-pinching. She started planning her spends subconsciously as 10% was set aside as soon as her salary hit her bank account. The objective here is to instill financial discipline. This has worked well, and she has got curious about alternate modes of savings now. The next step is to slowly take the 10% northwards.

Easy investment steps for young adults: This is a big step and I would advocate simple tools like opening a SIP and/or a recurring deposit. I suggest these as they are easy to execute in the DIY (Do it yourself) environment. I have started making talking about this at home and this article is one such attempt to convert the savings in the bank into small investments. The focus here is not on the amount of investment, which can be small, but to build a savings and investment habit in the budding years.

Personal financial plan:  You must be wondering how financial protection can happen merely by imparting knowledge. It is backed up by a robust financial plan with assistance which I have entrusted to my financial consultant who is helping me manage my money keeping in mind the goals for me & the family. A Term Insurance plan will ensure that these goals get met in case of the death of the earning member during the earning period by providing income replacement. Investment in a ULIP supports the above and is aimed at meeting one long-term goal. A health insurance plan for the entire family is to ensure that any unforeseen illness in the family does not place a sudden financial burden. A discipline of paying bills and loan installments on time ensures that unnecessary interest costs are avoided.

Implementing the new money formula helps with the financial discipline. Apart from fulfilling duties as a citizen, filing income tax returns in time helps keep an annual check on the financial status and triggers an annual review which is essential. I have already made a date with my financial planner in early July for the same.

Learning through experiences is the best form of learning and learning about money is the best financial protection a parent can offer to their children in addition to building a good financial plan.

Happy Father’s Day!

(The author is Chief Risk & Compliance Officer at IndiaFirst Life Insurance Company Limited. Views expressed are personal)