Parenting Series (5/5) - Financial Literacy (money management, a life skill approach)

There are many memories from college days, which stays with us for a longtime. Among them, one of my memory is of a classmate who used to maintain an Expense Log Book, keeping a track of his monthly allowances (pocket money). (We were in a residential program, living away from our families).

It has taken me two long decades since then to today, to fully appreciate my classmate's good money management skills & habit (maybe being a parent makes you wiser). Ironically, during our college days, most of us felt his daily ritual of accounting was overtly practical & boring. For us, college days were supposed to be carefree & careless. Running out of our pocket money by middle of the month, phir wohi udhari, len-den :-) (borrowing & lending), eagerly waiting for next month's money transfer & the cycle continued. In fact, by end of the academic year, our entire friend circle would be in debts :-).
In contrast this classmate of mine, would always have money in his bank account. Let me explicitly mention, so that one does not assume him to be a miser or a rich guy. He too enjoyed - watched movies, went to eateries, pooled in for birthday parties, joined us on excursions etc, all well-managed within his reasonable monthly allowances (pocket money). On top of it, he was our go to person (money lender) when we used to run out of cash (he financed us, without any interest %) ;)

After graduation, we all took different paths & we drifted away from our friends....knowing such intimate friendship would never be forged again in our adult - professional life.

In this new phase, with no best buddies around, it becomes a necessity to suddenly switch over from being careless with money to becoming careful & methodical with money management. Unfortunately, for many of us this transformation does not come naturally. For years our orientation towards money management has been random & lacked awareness. It's an uphill task to expect an overnight 180 degree turn in our conduct, from campus life to professional life.
In reality, our money management skills & habit, may take years to reach an optimal level & sadly for many of us, it may never transcend to the highest level of wealth creation.

At a fundamental level, my personal experience touches upon two key aspects:

1. Kind of people (students): 1st kind - Financially Literate (optimal money management skills/habit) & 2nd kind - Financially Illiterate (sub-optimal money management skills/habit).

2. Why Financial Literacy levels are different among people (students)?

In my opinion, the answer to Why Financial Literacy level differs? can be found in our approach towards parenting. And Financially Literate or Illiterate, is just an outcome of our approach towards parenting.

Think about it!

Our parenting style does not originate out of thin air, isn't it?
Rather it is deeply rooted in our socio-cultural-belief systems & it manifests itself from this paradigm.

Referring back to my personal story, during my growing up years my exposure to managing & understanding money (financial literacy) was negligible. Reflecting back, I realise it was a natural outcome of my socio-cultural background & my upbringing in a Bengali educated-working-middle-class family background.
Financial illiteracy during growing up years is not just limited to my personal experience, rather this is a typical scenario a child experiences during their growing up years, in an Indian educated-working-middle-class-family background.
Our Parenting approaches are more focused on formal education, good marks, entrance examination & aiming for a good job. In this road map of upbringing our children, sadly imparting life skills - Financial Literacy, is excluded from the syllabus.

Let's ask ourselves, what are the consequences for being Financially Illiterate?

Well not a rosy picture - financial bad habits, debts, low on savings & investments, risks not covered, no financial goals, forever dependency on job, lack of wealth, not achieving financial independence......a gloomy list!.

As a matter of fact, for our future generation, Financial Literacy will become far more important than ever before. Our children are going to live as adults (working professionals) in a future economy (world), which probably would be more uncertain & fast-paced change would be the only constant. Consumerism, targeted marketing (data analytics), push for instant gratification, easy loans, EMIs, spending through apps, digital wallets are going to be their constant companion. Therefore, Financial Literacy is a necessity for today's children & should be inculcated through their growing up years, before it's too late.

By being little creative, as parents we can develop 'N' number of ways to introduce Financial Literary (money management concepts) to our children. Listing out few broad approaches, in this direction:

• During Late childhood (approx. 6 years to 12 years)

1. Inculcation of Numismatics (coin collection) hobby in our children, is an interesting way of raising awareness about money/currencies.
2. Piggy bank - introduces children to concept of savings & delayed gratification.
3. Introduce children to concepts of M.R.P. (price), quantity (weight, ml), expiry date, best buy options, verifying bills etc. A fun & effective way of doing this is through experiential learning. Give them opportunity to shop, make payment, check bills in super-market/shops, under your guidance.
4. Give them understanding of household cash flow (i.e. you work to earn money). So that children don't assume for long, ATM machines are Santa Clause in disguise :-)
5. Introduce children to different modes of payments (hard cash, online, digital, cheque, DD etc)
6. Opening a minor bank account, introduces the child to simple concepts of banking. Guide them to put their money in their bank account (e.g. their piggy bank collection, money they received as gifts/blessings during birthdays, festivals).

• Adolescence (approx. 12 years to 16 years)

1. Giving children pocket money (weekly/monthly allowances) & offering them basic guidance on how to effectively manage their expenses, within their budget (allowances). 
2. Encouraging children to keep track of their allowances. As parent, you can go through their expense tracker on a periodic basis. (the idea is not to scrutinize, but to engage with them in a dialogue & help them learn best practices)
3. Gradually & systematically, introducing our children to advanced concepts: Investments, Risk covers, Loans, Assets-Liabilities, Tax filing, Financial goals etc. You can offer them experiential learning by involving them in your regular finance management practices.
4. Encouraging children to think, to ask questions, & to express their opinion. (Don't super-impose your thinking about money on them. The idea is to educate & empower our children by making them well-informed & not to sub-consciously super-impose our socio-cultural-beliefs of money on them).
5. Last but not the least, the most difficult act - being a good role model :-) Children learn by observing. All the above strategies would be less effective, if they see us walk the talk. We will have to lead by example.

Food for thought!

All of us teach our children, 'HOW to earn money', by educating them to become independent working professionals. Unfortunately most of us, don't teach our children, 'WHAT to do with money', once they start earning!