One of the most valuable inheritances one can offer a child is financial acumen; that steady stream of number crunching seamlessly in the back of their mind. Unbidden the answers would show themselves, making investment – and saving – so much easier.
This whirling of variables isn’t an easy thing to teach – but it does help if you are a certain kind of parent. Parenting styles are generally split up into four types, based off the work of US-based psychologist Diana Baumrind, who proposed three labels in the 1960s; authoritative, authoritarian and permissive. Baumrind's classification was expanded in the 80s to include 'neglectful type' by Stanford researchers Eleanor Maccoby and John Martin. This is what the terms mean:
- Authoritarian (or Disciplinarian): In this case, parents set all the rules and expect the children to do as they are told.
- Permissive (or Indulgent): Here, parents allow their children to take charge of most situations – they are indulgent to the point of fault.
- Neglectful (or Uninvolved): Where even if the parent is physically available, he or she is emotionally aloof.
- Authoritative (or Sensitive/Responsive): Here, parents realise that all children are not the same and believe in working together to create goals and enforce discipline.
A study conducted between 2012 and 2016 in the UK, whose findings were published in the ‘Journal of Child Psychology and Psychiatry’ in June this year found that besides the emotional, mental and physical benefits to a young child – as other studies have shown – there are positive financial implications of the responsive/sensitive style of parenting. It also safeguards the children from bouts of affluenza, which to the overworked – and well-heeled - family is a real concern.
Geeta Ramakrishnan, UAE-based Wellness and Ontological Coach, says, “As parents, we want to give our children the best and more, especially what we missed having as a child. Parents also tend to overcompensate their lack of time and guilt with presents, where the concept of budgeting pocket money, waiting, and earning the gift as a reward is losing its charm. The child is unable to recognize the value of these gifts and the money involved. The art of being financially adept starts developing and getting ingrained in our brains from a young age. The onus of this awareness falls on the parents.”
The art of being financially adept starts developing and getting ingrained in our brains from a young age. The onus of this awareness falls on the parents.
Get them young
Instilling a habit or thought is easier to do when the mind is young, and it can reap major dividends. UAE-based Indian expat Advait Arya, who is 16 years old, tripled his savings to Dh30,000 in one year by venturing into the stock market – it’s a move he credits his family for. Arya explains: “I was 15 years old when I started trading but I knew how the stock market works since the age of 9 or 10, because my family – father, grandfather, uncles, etc. - is deeply invested in the stock market. During the COVID-19 [movement restrictions] I was trying to explore things I could do to use up my free time and the stock market came up and that’s how I stated investing – I learned from my dad how to invest and I watched a lot of YouTube videos on how to invest from YouTubers such as Charlie Chang.”
Daily discussions of finances were helpful too, he adds. “We discussed things at regular intervals. So for example, I’m in front of the TV and the share market is on. At the time, I didn’t understand everything about that but I still understood a few things – because that’s the environment I grew up in. At the dinner table, my father spoke about the profits they made, the loses they made, which companies to look out for and this was always ingrained in me, you know, this financial independence, financial knowledge.”
Besides info, says Arya, his parents gave him practical lessons in cash management. “So for a long time my parents gave me pocket money – I didn’t get that money for free, I had to do chores around the household. And they made sure that that was the only money I had for that month, so if I wanted to go out I can’t ask for more…this bought about financial independence, taught me bout financial savings and I learned about these concepts from very young age, so I knew I couldn’t spend all my money at the same time. They all said I could do whatever I want with my money, so that’s what I did – to double or triple my money, I entered the stock market,” he explains.
Work means pay
Pakistani expat and mum-of-three Maria Farrukh believes in the rule of practice as well. “We often tell them that if you want something you can’t just have it – you have to earn it. What we make our kids do is – the older kids have to do chores around the house, be it helping with the dishwasher, hanging their own laundry when the maid is off – especially during COVID when we had no house help the whole family used to do the chores. And then they are given a weekly allowance,” she says. (Her youngest child is four-and-a-half years old; the others are 12 and 10.)
Sometimes, her 12-year-old son negotiates. If a test is coming up for example, he’ll negotiate for a particular toy or want if he can make a certain grade.
It’s not easy, says Farrukh, explaining sometimes why his friends can have an expensive thing like a Dh20,000 shoe while he must settle for something cheaper. “We keep telling him, you can talk to them, be friends with them but please never compare yourself with them. We come from a different background and don’t want to spend that much money on those items.”
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She also does comparisons in known parameters to teach her children about the money they are spending. “For example, one day we went to Global Village and my son wanted to buy something worth Dh250-300. I immediately gave him a comparison; you know if you convert this to Pakistani rupees, this is the whole month’s salary for the domestic in Pakistan who comes to our house. So if you want to spend the money on just one toy or one item, I could give it to you but just think about what a waste of money for something you will play with for a few days and someone back home has to work so hard to make,” she explains.
Using a milestone moment as a teaching tool
One could argue that each moment can be wielded as a teaching tool, but as all strategists will attest, for maximum impact, battlegrounds must be chosen. Recently, Farrukh found herself a winning plan. She explains: “When he had his birthday, most of his friends gave him money or mall cards, which was great – so when he had to go to the mall with his friends next, I gave him the mall card – that was his money and he knew the limit of that. So I noticed that he was very careful about spending now that he knew that this is what his limit is – he was more conscious about spending it rather than just randomly asking us to buy things and not caring about it.
“Now any Eidi or money they get as a gift, they know they have that cash and if they spend it all there’ll be nothing left so they’ll have to start doing chores.”
If you want your children to have good spending habits, then you need to model good spending habits.
Slowly, she says, we are teaching them the value of saving, “…because both my husband and I believe in saving up for a rainy day.”
Showing behaviour you want to see is, say experts, the only way forward. “If you want your children to have good spending habits, then you need to model good spending habits,” says Carol Glynn, Finance Coach and Chartered Accountant at Dubai-based firm Conscious Finance Coaching.
But what if you are in the red yourself?
You may want a legacy of financial savvy but it may not come easily to you. But that doesn’t mean you have to pass on the unwanted behaviour. Here’s what can help:
- Be honest: “This question is one of the most common ones I get. Our finances as parents do not have to be perfect in order for us to get our teens to learn about money. We don’t have to pretend that we are doing an amazing job handling our money. We just need to be honest, this actually makes us more relatable,” says Rebel Educator and Founder, KFI Global, Marilyn L. Pinto.
- It’s okay to not be okay: “Our teens need to understand how common it for grownups to mess up in this subject. Talking to them about some of our financial mistakes can be a rich learning experience for them. The personal nature of the experience also makes it more memorable, thus leading to better learning,” she adds.
- Talk about how financial mishaps have affected your life: She says: “I also think that being open about our financial shortcomings and how that’s impacted us has important lessons that our teens can benefit from. It opens their eyes to the realities of life and how tough it can be to navigate adulthood without proper guidance.”
- Focus on you: Glynn says use observation-based learning to your advantage. “Upgrade your own financial literacy levels and understand your own money mindsets. They will learn it's important to educate yourself from you when they see you putting time and effort into making positive changes. Educate yourself so you can talk to them about financial concepts such as how credit cards work and why saving is important,” she says.
Our teens need to understand how common it for grownups to mess up in this subject. Talking to them about some of our financial mistakes can be a rich learning experience for them. The personal nature of the experience also makes it more memorable, thus leading to better learning.
Keeping the fear of cash at bay
While teaching a child to spend money wisely is important – it is just as important to not birth or feed negative cash associations, which may happen if one is trying to be too thrifty or vilify currency. “When I was growing up,” says AB, a Gulf News reader who spoke upon condition of anonymity, “my parents would always say money is the root of all evil. This was so ingrained in me that even when I started working and had my own money, every time I had managed to save some cash, I’d blow it up – because I didn’t want to be evil. It took a lot of introspection, unlearning and relearning to say, ‘it’s not bad to have savings, it’s just prudent. I’m not bad for wanting more money in my account.”
Glynn offers the following solutions for parents wanting to maintain that balance between good financial sense and fear of notes:
- Be mindful of how you speak about money in front of your children. Keep it positive and solution-focused.
- Be mindful of how you speak about other people and their money in front of your children. For example, we are advised not to speak negatively about our bodies in front of our children. It is the same with money. Making judgemental comments about wealthy people, linking their wealth negatively to their personality may cause your children to grow up thinking wealthy people are bad, therefore it’s bad to be wealthy.
- Involve them in the family budgeting discussions. This is a great way for them to understand the value of money.
- Give them age-appropriate allowances which they need to manage. Talk to them about how to best utilise their allowance but let them make mistakes. For example, let them spend it all and then experience not having any more until their next allowance date. This is a great way for them to learn to budget.
- Speak to your children honestly about your struggles with money, in an age-appropriate manner. Be honest and open and let them see you make mistakes but are working on improving your habits. It's important they understand no-one gets it right 100 per cent of the time.
UAE-based mum-of-two Houda Ghediri says she’s working on teaching her children the difference between needs and wants, and through that teaching them financial literacy. “Also, I give them a weekly allowance which I let them manage the way they want. If they spend all their allowance, they will realise that they can’t save up for something bigger.”
Like Farrukh, Ghiediri uses rationale to define purchase. “I also explain to them how brands try to sell us things we don’t need through engaging commercials and marketing.”
Finally, she uses entrepreneurship to grow empathy and financial thought. She says: “They get to make things and sell them around the neighbourhood. They will see that it is difficult to get people buy their stuff even if it is just 15 or 30 dirhams because small amounts add up and you will end up spending lots of money without realising it,” she explains.
Anishkaa Gehani, Founder and CEO of Yardstick Marketing, uses the old trick of delayed gratification to teach her children about savings. “Our kids were always encouraged to save from an early age in their little piggybanks. In the recent years we have exposed them to the different investment options available and also educated them on the importance of saving. We let them take their own decisions and grow from their own experiences. Today they are active investors in bonds and stock markets as we enjoy keeping a close watch on their investments with them,” she says.
Parenting manuals don’t exist, but information that can help is all around you. Credit your account with financial learnings and you can make smart deposits … and these short lessons will create the inheritance you want to hand over.
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