The coronavirus pandemic has made us realise the importance of money and the need to save. We are more cautious spenders now. For both grown-ups and children, this has been a great learning experience. Talking finance to children is important not just during crisis but even otherwise. The earlier you start, the better. Children must learn to prioritise their needs with limited resources available. The concept of a monthly budget can also help.
THE CORE POINTS
“In my opinion, various aspects of personal finance should be taught to kids (above 14 years of age) and should preferably be a part of their curriculum. Till then, parents can initiate their children into basics of personal finance like difference between savings and investments. Impact of inflation, various asset classes and how do they behave during various conditions. Parents can also encourage kids to read personal finance magazines or columns published in various newspapers for better understanding of investment and finance,” says Balwant Jain, a tax and investment expert.
Explaining asset class, he says, “You can make equity investments which could be done via mutual funds or you can directly buy shares from the stock market. Second asset class is gold like a bar or coin. Third is debt. You can buy bonds, invested in EPF, FD, and others. Fourth asset is real estate where you can buy a house, flat, office, land etc. There are many other assets like antiques, paintings, international equities, etc but these four are the main assets."
Explaining their behaviour, Jain says that equity gives better returns and the risk is eliminated in the long run. It is also tax friendly in the long term; you have Rs 1 lakh exemption and above that, you have to pay only 10 per cent tax.
The concept of limited pocket money with a piggy bank will help kids appreciate the importance of saving for their goals. “This will also teach them to differentiate between immediate gratification and postponement or delayed gratification,” adds Jain.
This pandemic happened all of a sudden, and people are losing jobs or undergoing salary cuts. Something similar could take place in the future as well. To avoid facing a similar crisis, Jain suggests setting up a contingency or emergency fund. “One needs to keep some money at home and some money in liquid form like liquid funds or fixed deposits which can be liquidated immediately,” he says.
PARENTS NEED TO MAP INVESTMENTS
Looking at the current situation, he gives some tips to parents to secure their children’s future.
“One should have fixed personal finance goals for self and children. The goals do not generally change with present situations. The goals can be saving for child’s education or marriage. For these goals, one has to regularly save. The person needs to map his investments with specific goals to bring in sincerity with the act of investing,” he concludes.