When we talk about children and personal finance, we know that these are two distinct issues that parents face. One is obvious, saving for a child’s future needs. The latter is, which most parents overlook at the moment, is more important and we will talk about it.
When we actually start saving for children’s future, the biggest problem is in products that are marketed for this purpose. This not only limits to personal finance. You might have often heard the pitch for all kind of products as : ‘If you love your kids, you should buy our product’. The pitch is simple but creates an even bigger impact in your head. We have heard it for so many times in our lifetimes that we have started to believe that just like a tax plan or a pension plan, a child plan is also an essential part of our personal finance. To be honest, ‘child plan’ is nothing more than a marketing term.
Nothing distinct these products from each other. One of the largest child mutual funds was just a balanced fund of mediocre performance. The marketing tactic was to tell the parents that you should invest in it and use it to pay your kid’s college fees. But the honest truth is that the returns such funds produce are just normal money. One should expect them to especially designed for paying college fees but that never happens. Parents can do much better just by investing in a better balanced fund.
If you look in the Indian laws and regulations then you will find that there is no special tax-break or any other facility that is available to a financial products meant to specifically finance some aspects of your child’s future. Yes, there should be such a thing, but let’s stick to our topic. First thing you should do is to estimate the amount of money you will need and the time frame in which you need it. Then, just simply choose an investment that meets your criteria. The ‘child plan’ part has nothing to do with it.
Now, let’s focus on the other problem-children and money. This might not be urgent, but is definitely vital in the long run for your kid. Indian parents barely teach their kids about money. One can easily find that most of the teenagers, or grown children, don’t have an idea about how money works. They are unaware of the flow of money in the society and other jargon like earnings, savings, and investments.
What happens when we buy something? What does a bank do with your money? How taxes work and what are they for? How do investments make you money? How is money created? Why is it that the value of investments increase with time but that of your card and mobile depreciate? Why things were cheaper in the past? How high will the prices be in future? Etc.
While formal education is supposed to educate your children about the money paraphernalia, it’s barely seen in implementation. Even if it comes into implementation, the pedagogy might not be quite intriguing to grip the students and make it a subject just like history. The best thing you can do right now is to teach your child about how money works, that will be beneficial for their future life.