The best gift a parent can give his/her child is the gift of literacy! In this article, however, I am going to talk about something that is not taught in most schools across the world -- financial literacy.
Let me begin with an example. We stay in Mumbai. The other day, I asked my daughter Reet where she wanted to go. "Shopping" she said. "Crossword," she added. On further questioning, I realised she wanted to go shopping at Infinity Mall in suburban Mumbai and then go to Crossword to read books.
Later, I realised why she had responded in this manner -- the mall, after all, was where we went most often. I talked to several other parents and they said the same thing -- the mall was where they headed for with their families on most weekends. Ask yourself where you spend most of your time with your kids and I bet you will see where I am coming from.
We are living in a period of unprecedented economic prosperity where many of us are becoming more and more prosperous. This prosperity also brings with it a tendency to spend and make financial decisions that may not be in one's best interests.
Unfortunately, we are also living in an era of unprecedented 'time poverty'. As a result, though it has become very important for us to become financially literate -- and ensure that our families are financially literate as well -- many of us still do not know how to manage our money. Even today, making money is easier than handling or managing it with responsibility and tact.
In order to understand money, one must have a basic understanding of what it is all about, its importance in everyone's life and how to make wise decisions when it comes to money. Just the other day, I read an article on how financial literacy will be part of the CBSE curriculum next year onwards.
What exactly is financial literacy and why is it important?
Financial literacy means understanding:
~ Income, expenses and savings
~ Budgeting
~ Assets -- real and financial -- and liabilities
~ Insurance and its purpose
~ Investments and how to make money work for you
~ Taxation
~ Risk management, asset protection
~ How to handle situations such as disability, divorce, starting a business, inheritance
~ Wills, trusts, intergenerational wealth transfer
Financial literacy is important because it affects your day-to-day life as well as your future.
For example, I often come across people who buy insurance as an investment. This is a big mistake, but you will only understand your error if you have basic financial literacy.
The onus and responsibility of making our children financially literate lies on us. Don't expect schools, insurance companies, brokerage houses, banks or mutual fund houses to educate our children. If we don't, nobody else will.
Amar Pandit is a certified financial planner and runs the Mumbai-based firm My Financial Advisor.