Ask any parent what they discuss with their children and a variety of topics would come up. It could be discipline, respect for elders, social interaction skills, leadership and so on. Surprisingly, in most families, money and investments are still topics for adult discussion. That is a cardinal error. The sooner you introduce your children to the esoteric world of money and investing, they will be better prepared for the real world. Here are 7 talking points you can try with your children. The sooner you start the better it is!
Talk to them on the importance of saving
The legendary Warren Buffett rightly noted that the one quality that helped him create wealth was thrift. Unless children are able to appreciate the importance of thrift, they will not be able to appreciate the role of savings in planning the future. Explain to them that saving should be a target and spending should be residual. Demonstrate to them with examples how by avoiding splurging on restaurants you can actually pay for their higher education. It is these kinds of live examples that will reinforce the ideas in their minds.
Get them savvy with budgeting and accounting
To be fair, they need not obsess themselves with the nuances of double entry accounting system. That is not the intent, anyways. The idea is to make them understand the importance of budgeting, estimating expenses, monitoring and keeping a record of expenses. In the long run, investment is as much about discipline and meticulousness as it is about smart investing. The sooner they pick up the importance of keeping records, maintaining details and documenting the better they will appreciate the role of discipline later in life.
Familiarize them with the technology behind money
Here is a caveat for you! Your children are much more technology savvy than you can imagine and their learning curve is much sharper. But this is not about how well they operate their Facebook and WhatsApp accounts. Teach them the technology behind money. Tell them how ATMs store and dispense money, how bank transactions are executed, how online transfers are handled and how modern concepts like digital money and UPI operate. These may appear complex but most young minds are trained to accept technological sophistication. Your job is to introduce them to the convergence of finance and technology.
Teach them the value of patience in wealth creation
The power of compounding works best when you stick to equities for a long period of time. In any kind of investment activity, especially when it comes to wealth creation, it is patience that works in your favour. Your child needs to learn early on that churning money is not a good way of generating more money. They also need to understand that you become rich by working for money but become wealthy by making money work for you. That is largely a game of patience.
Talk to them about the two sides of debt
For a lot of youngsters, debt has a one-sided perspective depending on what they have been exposed to. Talk to them about the two sides of debt and how it can be a double edged sword. Debt is not exactly bad if you know how to keep it within limits. They also need to understand that if they are under too much debt, they run a huge risk. Normally, wealth creation and too much debt are antithetical to each other. This is a relationship they need to understand at an early stage.
Explain the relationship between risk and returns
Most parents talk about risk and returns as two discrete items. That is not the case. Your children need to understand that risk and return are actually two sides of the same coin. There is a positive and a negative side to risk. To earn higher returns and generate wealth, you need to take on risk. For example, you can never become rich by investing all your money in conservative liquid funds. You need to incorporate the power of equities into your portfolio for that purpose. That is called measured risk or calibrated risk. What they must avoid is reckless risks, which are just taken without understanding the implications. That is the kind of risk they need to stay away from.
Let them understand the importance of taxes at an early stage
You surely want your children to grow up to be responsible taxpaying citizens. Let them understand why it is important to pay taxes, both from a legal and from a macro perspective. More importantly, let them understand early on the difference between tax avoidance and tax evasion. Tax avoidance is, after all, a right given to you by the Income Tax Act. A post-tax approach to investments will help them view things in a better perspective.