Here’s how you can introduce your teenager to financial planning

Jan 04, 2019 | 10 months ago | Read Time: 4 minutes | By iKnowledge Team

Children must be taught the value of money and parents need to make them financially literate. The teenage years are the best time to teach them about the importance of saving and investing.

Preeti Sahni has been thinking that the time has come to have the ‘talk’ with her son Ravi who has just turned 14. Normally a tractable boy with an easy-going disposition, lately he seems to have been influenced by some friends and their possessions. Though there have been no overt demands, she has heard him frequently talking about the virtues of some smartphones and tablets that his friends are using.

Preeti and her husband both work in well-known companies and hold high-paying jobs. Both of them are however from middle-class backgrounds and have been brought up in families where economy was always practised. Preeti, especially, had parents who never encouraged unnecessary spending and she and her siblings never had pocket money to spend.

With an eye to the future provisions for Ravi’s higher education was already catered to by a child plan they had invested in. Aegon Life’s iMaximise Insurance Plan is the plan they had zeroed in on. Apart from protection and market-linked returns, the cover carries no allocation charges and this maximises the returns for the investor. In the event of absence of the parents, the child benefits through Triple Benefit payout options where financial relief is provided in stages.

However, Preeti would like her son to imbibe some of her prudence and learn the value of money. Calling him one day she told him that she had decided to increase his pocket allowance. He was allowed a modest allowance by his parents. Ravi brightened at this news. “But,” continued Preeti, “you’ll have to work for it.” She told him that henceforth he would have the job of cleaning their car every weekend.

She told him that she and his father would also be monitoring his expenditure. At the end of every quarter if he showed that he had some savings left over, then he would be rewarded.

You may be sure that Ravi was not thrilled by this. However, with both his parents being firm over this arrangement, he had to comply.

Budgeting   

To help him keep track of his expenses, Preeti gave him a notebook and told him to write down all that he had spent every day. “This way you will know where you are spending.”

During the first two quarters he had run out of money by the end of every month. He was also not regular with his expense recording. There was no reward. In the third quarter, he resolved to be more careful and remembered to write down his daily expenses. At the end of the first month of that quarter when he went through his expenses, he found that he was spending a lot on eating pizza with his friends. He did not even like pizza. The next month he was careful not to spend on this item. That month he had Rs 100 left over. It was not much but it was a beginning. The following month he had increased his savings by Rs 50. 

When he presented his mother with the Rs 250 saved up, she was pleased but told him that he would have to show similar prudence for another quarter. She also told him to put aside the money he had saved and not spend it.

 Saving

Thrilled by his initial success, Ravi was now fired with the zeal to really increase his savings. Going through his expenses sheet again, he wondered whether he could cut down on other things. He thought he could do without spending on snacks every day. His mother packed him a good lunch and there was no need for snacking. It was a big sacrifice for him because he really loved them. Cutting down on snacks increased his savings by Rs 200 every month.

At this point Ravi was also pondering his chances of earning extra money. He offered to clean out the kitchen cupboards every week, a chore that his mother normally undertook every fortnight. Preeti smiled to herself when he offered. Her son was learning fast!

With the increase in his pocket money, Ravi was tempted to spend more and that month he splurged a bit. However, the next month he overcame the temptation and could save a tidy sum.

Investing

It was almost a year since Ravi had been earning his pocket money and saving. At the end of the year, Preeti asked him what he intended doing with the money he had saved. She explained to him that his money was lying idle and was not ‘earning’ anything. He had to put his money to work. He had already learned simple interest and compound interest at school, so she showed him how interest on an amount helped in increasing his savings. She pointed out the benefits of compounding – interest earned on interest and how that would, over a long time, build into something big.

“You mean if I put my money in a bank then the bank will give me money for that?” he asked.

“Yes,” replied Preeti. “Not only banks, there are other ways that you can make more money.”

 Being above 10 years in age, Ravi could open and operate a bank account independently. Preeti helped him with the account opening and then Ravi had his first savings account and his first recurring deposit, giving him 6.5% interest rate.

At the end of the second year, with Ravi still earning, saving and investing diligently, his parents decided that he had earned his reward. When they offered to buy him a tablet, his reply was, “give me the money instead and I will invest it. I can use Dad’s tab for now. ”

The lessons that Ravi learned in that first year were invaluable. The effort involved in earning his money, learning to put a curb on his expenses, tracking his expenses, helping his family with the chores, and learning about investing made him realise the value of money. It also taught him the lesson to delay gratification.

Financial literacy is an important part of a child’s education and it has to start at a young age, when they are still impressionable and can be influenced. Know about the different indian government schemes for women here.

II/Dec 2018/4707

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