Prepare your teen for financial adulthood

Chinna, Guddu, Munnu, Polla, are ready for college! Yet another generation of children are raring to start college life. Parents are busy trying to figure out arrangements and parents of children going abroad are worried about their inability to travel with their ward due to Covid-19 related travel restrictions.

For the children, going to college is stepping into a new way of life. And while they look forward to living on their own and taking their own decisions, parents must prepare them for financial adulthood. It is as important as talking to them about ragging, drugs, and sex.

If the child has some time before joining college, parents should teach them some financial basics around banking, investing and borrowing and get them involved in transactions. This would help them when they have to manage the same themselves. Way back in the 90s, I used to see classmates fumble with small tasks like cash withdrawal or making a demand draft, as they had never been exposed to a bank till college. These days with internet banking, bank transactions are much easier.

First, get the child to apply for a PAN card and a bank account (if they do not have one). Then tell him/her about the working of a bank account, what transactions can be done online and the dos and don’ts around bank passwords since there is a tendency to share ATM Pin among friends.

Also read: Starved of social connection, Bengaluru students find love in stock trading

Explain to them the difference between debit and credit cards and why it is important to pay off credit card bills fully on time and the costs of not doing so. Have the money talk. Educate children about the need for living within the living expense that you would be providing. Share with them how they can budget for necessary expenses as well as for fun expenses.

A friend encouraged his daughter to challenge herself to save a part of her pocket money, so that she could spend on something she desperately wanted. I have seen many parents giving large monies to teenagers, but this leads to youngsters not valuing anything, whereas when child saves and buys something with his/her own money, the sense of pride and feeling of being independent is immense.

When kids ask for extra money in college, indulge them sometimes but do say NO most of the times, to maintain financial discipline for yourself and your child.

Children are going to face peer pressure on clothes, gadgets, shoes etc. and whatever they have will not seem to be good enough. Parents need to urge children to accept their financial situation.

These days young adults are being targeted by FinTech’s for insta loans to buy gadgets etc. The interest rate on these loans is upwards of 22% p.a. Kids must be taught about calculating the interest outgo so that they learn how detrimental high-cost loans can be and stay away from them. In fact, if you have taken an education loan to fund the child’s education, you must make the child aware so that they appreciate the value of your hard-earned income and savings.

This is also a good time to motivate kids to learn basics of investing. Give them an amount which they can invest every month and which they will manage themselves and give you updates. Ask them to read and research before investing. I see youngsters showing off about making money in stocks.

They have been lucky due to rising markets and have no idea on how to choose stocks.

Educate them on the basics of investing like inflation, compounding and risk and the type of instruments available. And then let them make their own choices.

Prepare them well to face the upcoming challenges.