Take risks, own assets and give back, is the message I’m giving my kids
It’s been over a year and a bit since I quit my corporate job to pursue a financially independent and free lifestyle, and to be honest, it’s been a whole lot of fun. Along the way I’ve rediscovered some interests, started a new business, formed new friendships, gotten fitter and have even helped a couple of others achieve financial independence.
I am convinced more than ever that true wealth is indeed the bigger picture – where you have both money and time, time probably being the more important ingredient. Waking up every day free from negative stress, with a childish excitement of what the day could bring – shit, that is what life should be! It’s like waking up to the sound of Cuckoos (if that’s your thing :))
I feel I should pass on this learning to my two kids because it is a great way to live and a great value to understand early in life. How having more time can profoundly impact one’s happiness quotient is something they can learn, from my first-hand experience. That is not to discourage them from working tirelessly hard or being ambitious, but only to help them find an ultimate purpose in the otherwise relentless and never ending pursuit of wealth.
I hope the experiences I share helps them question the current stereotypical way of existence where people spend most of their lives chasing money, without understanding that beyond a point, money has little impact on happiness.
Surely, every parent also wants the same thing. To see their kids grow up as happier and better versions of themselves. And to do that, they dole out varied life and financial advice, to model good behavior for their offspring to emulate. Unfortunately, the results of this are not always good.
Here are some common financial mistakes I see parents make with kids:
Making everything available on a heartbeat
From double fillet burgers on call to eating out every weekend to on-demand clothes and shoes, most parents want to pamper their kids by providing everything all the time. Yet this goes against the very ideas of affordability and scarcity, concepts that are essential in helping kids understand the value of money.
No financial boundaries
Most parents do not have an idea how much they’ve been spending on their child. More importantly the child knows no limits on his spending. It might be a good idea to put them on a fixed allowance early on so that they start to understand limits.
Concept of earning, spending and saving
Kids could do well to understand that there are consequences to their spending. They need a mental framework for this i.e. the more they earn, the more they can spend. And the more they spend, the less they save for the future. Parents could help them understand this by actively engaging with them when they are making spending decisions. Instead of providing money on demand, parents should help kids decide basis this framework. Most parents do not do that.
When I grew up in my middle class 1990s household in suburban Mumbai, everything was scarce, hard to get or simply out of reach. We had to make do with whatever was made available to us, which inadvertently taught us some important financial lessons. Affordability, scarcity, value of money, accountability, ownership, and risk taking were concepts that were ingrained in us, concepts which may be alien to most kids of this abundant generation.
So, I’ve decided to try and change this a bit and give my kids a different education. And I don’t mean in the traditional academic way. Education that comes from more meaningful experiences around money and work and life, an education that I am hoping brings back some of the financial values of a working class 1990s household. Here goes…May be more parents can join in on this experiment.
Many kids have it easy these days. With an abundance of gifts (and return gifts) from parties, and some easy money from relatives & friends, kids are cash rich at times. My kids are no different. I want to help them work and earn from that. To begin with, I’m going to give them an allowance (probably Rs 1,000 per month) to help kickstart the saving process. To that, I’ll add a generous 1% interest per month on everything they save. And finally give them additional opportunities to earn through things like gardening, social service and walking (instead of driving). Hopefully they start to understand the value of money through hard work, as well as get the power of saving, habits that I hope will endure time.
Value of taking risks
I want to help them understand that risk taking is an essential and necessary part of life, and that the best things come to those who take chances. One of the simplest ways to do this, given that they will now be getting an allowance, is to allow them to make money choices at an early age. For example, investing what they have saved in stocks (that give dividends) vs keeping the money in bank accounts is a choice I want to encourage, or part owning assets that give some yield (like govt. bonds) or investing in a small business of a friend or family member. The idea is to allow them to take measured risks that help them understand both the gains and the pitfalls. My older daughter has already taken the cue and has expressed a desire to invest in Apple stock :).
Tracking & Accountability
Instead of the traditional piggy bank, my kids will have a spreadsheet that they maintain to track what they have spent, where they have spent, and keep a tab on balances. A deposit into this pseudo bank will be in the form of a cash hand out to me, and the reverse for a withdrawal. What makes this most interesting is that for every rupee that remains in the bank at the end of the month, I will pay them the extra 1% on it. Once the money starts to grow exponentially, I am hoping they see the exponentially growth and understand the power of compounding.
What can they spend on
There’ll be very few restrictions and the usual costs around school, infra, clothes etc. will continue to be borne by the parents. Their current favourites viz. bags, makeup and Lego Friends will need to come from the pseudo bank. They’ll not be allowed to spend on junk food.
Our family belongs to the Zoroastrian faith that in essences asks you to live by three principles
Good Thoughts, Good Words & Good Deeds
Charity is an important part of the third tenet. As Parsis, giving back is fundamental to our culture, no matter how rich or poor you are. I’ll be asking my kids to either give back some part of their savings to charity, and if not, to physically contribute to social work.
I look forward to more parents joining in on this experiment, and sharing their thoughts under the comments section below.
Financial Distributor & Founder – Pagdiwala Investments
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