Parents do not give enough cognizance to the way they handle money in front of children, but how they portray it will define the child’s money confidence in future.

Becoming a parent is a beautiful life changing experience which every couple wishes to have at least once in their life. But a small baby brings along the huge responsibility of future planning which involves efficiently managing current expenses and building a stable investment portfolio. An additional member means an increase in expenses at the same income level. 

Good Financial Habits which must be practiced by every Parent and taught to every Child

  1. Make a budget every month to keep a track of earnings and expenses and stick to it.
  2. Be aware of incidental as well as intentional spending habits.
  3. Try setting a daily spending limit for yourself based on your budget.
  4. Use credit cards wisely because credit card debt can build up scarily fast, thanks to the often-exorbitant interest rates.
  5. Take advantage of tax breaks.
  6. Explore work allowances which one may not be aware of like transport allowances, overtime etc.
  7. To be truly financially responsible, it helps to familiarize oneself with some basic terms and ideas like: money orders, trust funds, tax tips, check writing etc. The more financially literate one is, the more in control of money one will feel. 
  8. Negotiate your salary and understand if you’re getting paid a fair amount for your skills and experience level and how your earnings compare to others in your industry. If there is an unfair disparity, one should definitely take it up with the management. If unfortunately negotiation attempts are futile, then one should look for another job. Conversely, your salary could be fair, but just not enough when leveraged against your expenses and/or debt. In that case, you should become stricter with the budget and let go of superfluous expenses till all debt is paid-off.
  9. Most importantly, start saving for retirement from today onwards. Retirement comes sooner than later and if one wants to live comfortably without any financial troubles then savings needs to start now.

4 Parental Behaviours that can impact Child’s Decision-Making

The following are the 4 Parental Behaviours that can impact Child’s Decision-Making:

1. When you give your children too much

It’s natural for parents to indulge their progeny, giving them what they want, when they want, and planning an elaborate legacy with property and several assets to bequeath after they are gone. It may not be such a good idea. Pampering kids and giving them too much affects their aspirations and hunger to grow. They will not understand the value of money or appreciate how it is earned, and will end up spending it wrongly.

You give kids too much allowance: When you give a large amount as pocket money to the child and supplement it if the money finishes midmonth, you are telling the child that he never has to work hard to earn. When he is forced to do so as an adult, he may be paralysed into inaction or have a problem in career growth and adjustment.

You fulfil their wants instantly without delay: If you do not prolong and give everything the moment a child asks for it, it can not only lead to frustration but also career problems as an adult. The child will not want to work even for his needs in adulthood because he will assume it will somehow come to him. When it doesn’t, it can lead to depression and career problems because he will not be able to adapt in any work organisation.

You plan to leave behind too many assets: If you have a house and other assets, you cannot prevent their transmission to kids, but don’t go out of the way to acquire these. If there is too much on the kid’s platter, he will refuse to work for a living and fail to explore investing options on his own. Instead, provide the kids the best education and allow them to fend for themselves. If you can’t avoid leaving assets, it’s important to teach the children how to manage these.

2. When you cause financial confusion

When there is a conflict in parenting parents regarding the child’s habits or goals, or parents do not practice what they preach, or even force the kid to accept their investing habits, the child can face a dilemma that lasts into adulthood. If a child is not sure what to do as an adult, he invariably ends up doing nothing, especially when it comes to saving or investing.

You force your financial beliefs on chidlren:  Most of the financial dilemmas children faces as adults are due to the differing investing beliefs and earning capacities of their parents. This limits their wealth growth when they start earning. A child, who has been exposed by his parents to the fixed deposit culture, will find it difficult to invest in equity. He may not want to buy a house or invest in crypto currency, but will hesitate in doing either. Most of the youth today refuse to invest in liquid funds, letting the money idle in a bank account, because their parents have not had any exposure to mutual funds.

Both parents are not on the same page: Even if there are differences in financial habits or attitudes among parents make sure you put up a united front, instead of expressing opposing views, while dealing with kids. If one of the parents refuses to buy an expensive toy or gadget for the child, but the other parent goes ahead and buys it instantly, the child will learn to be manipulative. More importantly, he may end up being financially indecisive, or an extreme spender or saver as an adult, because he will not know which is the better option. Any extreme opposing behaviour by parents confuses the child and he doesn’t understand which way to go. The growth of child in terms of mental make-up and confidence about money goes down.

You teach them one thing, but do another: Sometimes kids overhear their parents talking to accountants about evading GST or income tax. They are either passing on negative behaviour or sending mixed signals to the child because a kid cannot tell the difference between right and wrong. Similarly if you are refusing to buy your teen a phone because it is expensive, but buy a costly one for yourself, you are passing on the message that either saving is not as important as you make it out to be, or that as a parent you can do whatever you want and spend at will. Be sure to practice what you preach because children learn more by observing you than through your sermons.

3. When you give them money stress

Financial anxiety that is passed on by parents to their kids, knowingly or unknowingly, is another cause of paralysis in adulthood.

You argue about money in front of kids: If parents have opposing money personalities spender versus saver or risk taker versus conservative investor there is bound to be conflict. Remember, however, not to expose your child to bitter arguments and preferably do it when kids are not around. Fights over finances can make the child resent money and avoid all financial decisions as an adult. Besides arguing about money in front of your child may make him insecure about himself and he may learn not to vocalise his needs to maintain harmony. If the argument has taken place, ensure that you explain to the child that couples can disagree sometimes and comfort your child.

You take on too much debt and can’t repay: These days many parents prefer living off loans, buying everything on EMIs and maxing out their credit cards, while others may have to take loans for their businesses or homes. If you are unable to repay the debt and are hounded by creditors, it can cause anxiety and behavioural problems among kids. As adults they may either rebel or swear off loans even if it is needed or simply may follow in their parents’ footsteps and ruin their finances. So either keeps your debt to the minimum so as not to expose kids to unnecessary anxiety, or explain it to them about how you are taking steps to repay.

You don’t explain or talk about financial crisis: Lack of communication about financial problems with kids can translate into latent anxiety and confusion which can result in financial paralysis in later life. Whether it is job loss, salary cut or any other crisis, most people don’t talk to their kids thinking it best to keep them out of their problems, or perceiving them to be too young to understand or deal with it. However, kids are quick to pick their own ways. They could feel guilt at not being able to help or see money as a problem that needs to be avoided as an adult. The best option is to sit with them and explain the situation and how you are planning to deal with it. Make it clear that you do not expect them to solve the problem, only to help the best they can by cutting down expenses like eating out or forgoing holidays. This will cut down their stress and make them feel involved.

4. When you take all the Decisions

When parents take all the financial decisions, they create a superficial sense of responsibility which will later lead to lack of financial accountability. So it is important to support your child’s financial decisions without rescuing them.

You don’t allow them to use pocket money as they want: When you give your child pocket money, by all means lay down some guidelines on spending, but after that make sure you allow them the freedom to make their purchase choices. If you constantly criticise or override the child’s decisions, it will take away his confidence and self-esteem, which might reflect as financial paralysis in later life.

You choose their career for them: If you force your child to select a career for its earning potential, not the one he has a flair or interest in, he will either lose the confidence to take decisions as an adult, or rebel and refuse to take any decisions altogether. He may even resent the money he makes from a lucrative profession he has no interest in, and give it up.

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