These days, the kids in school are wont to flaunting their iPhones and designer bling. So when you spot a Nokia 7610 Supernova in the hands of an 18-year-old, it is not really cause for comment. Except for the fact that this particular teenager paid for the phone from her monthly allowance. Ah, you might say, her parents must be giving her a hefty sum every month. Far from it.
Sadaf Masood gets Rs 1,000 a month, which has to cover top-ups for her phone as well as other necessities of teenage life. Her parents recharge her mobile phone for Rs 200 a month, but anything over this amount comes from her allowance. So, managing to save a set amount every month took all the discipline she could muster. Her efforts paid off when her parents agreed to contribute Rs 2,000 for the phone, making it possible for her to buy it sooner than she had planned.
Another college-goer, Shweta Nahar gets a monthly allowance of Rs 2,700. She makes sure that she saves at least Rs 300 and sometimes manages to raise this amount to Rs 2,000. "My mother tells me to write down my expenses so that I can keep tabs on where I need to cut back," she says. This lets her splurge on gizmos and on partying, but she knows that she won't cross her financial limit.
What American Teenagers Know About Money |
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| They may be techsavvy and hip, but American teenagers don't have too much knowledge about elementary financial concepts. Two recent surveys reveal that they are not very clued in on money matters. However, what is heartening is the overwhelming desire to learn. The surveys also reveal that American girls are more conscious about the need to save, while most boys continue to believe that their savings are on track. |
| Testy time: American teenagers have poor knowledge, but want to learn |
| 48% is the average score in personal finance in high schools. |
| 51% acquired financial skills through trial and error. |
| 79% feel they are knowledgeable about financial matters. |
| 80% would like to learn more about investing. |
| The survey was conducted by market research firm Mintel in February 2009. |
| Mars and Venus: There is a wide difference in how boys and girls regard money |
| 54% respondents wanted to save or budget their money carefully. |
| 87% of male respondents were confident about their savings. |
| 47% of males wanted to save money or budget it carefully. |
| 15% wanted to spend their allowance very quickly. |
| 50% of females were confident that their savings were on track. |
| 59% of female respondents wanted to be vigilant about money. |
| Survey conducted by financial literacy Website themint.org between July and September 2008. |
Surprised at these stories? After all, most of us are more used to bad-mouthing teenagers whose sole aim in life seems to be totalling their rich fathers' cars. The good news is that for every kid who believes that money grows in daddy's wallet, there are dozens of Masoods and Nahars who are surprisingly mature when it comes to their finances. This is largely thanks to intelligent parenting. We take a look at how smart parents manage to inculcate good money habits and instil financial discipline in their otherwise rebellious offsprings.
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| Vishesh Kalra |
| Age: 17 |
| Monthly expenses: Rs 500-700 |
| Money skills: • Knows Net banking and books train tickets and makes online purchases. • Doesn't get allowance, but sticks to a budget. • Not old enough to write a cheque, but confident of managing own account. |
| "My mother often takes me along to her bank. This has helped me learn about banking procedures and now I can operate a bank account on my own." |
Monthly allowance
There are two widely divergent schools of thought when it comes to giving teenagers an allowance. One group believes that the kids should be encouraged to work for their money and not be given an allowance as an entitlement. Robert Kiyosaki, author of the hugely popular book Rich Dad, Poor Dad, says that an allowance teaches the kids to be employees instead of employers: "By giving the kid an allowance, you teach that child to work for money rather than learn to create money."
This is what Maria Ahmed's parents believe. Ahmed, a thirdyear college student, is barely 21, but earns close to Rs 2,500-3,000 a month by selling Avon cosmetic products. Last December, she gifted her mother a diamond pendant worth Rs 12,000 on her birthday. "It was not just the value of the gift but the fact that she had so diligently worked towards that goal which won appreciation in the family," says her mother Noshaba Firdos.
However, most parents don't agree. Yes, they encourage children to take up part-time jobs or summer jobs, but they believe that giving them a regular allowance teaches them to be financially responsible. Some experts say that if a youngster is given a fixed amount to spend, he is more likely to cut down on expenses than if his parents were to pick the tab.
Set financial goals
Telling a teenager the value of saving is, no doubt, a laudable idea. But what really works is to show him how to do it, say, with his allowance, so that he can afford the PlayStation 3 he's drooling over. Masood's parents, for instance, could easily have afforded the phone their daughter wanted, but judged that it was better for her to learn the value of money and save up to buy her own phone.
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| Sadaf Masood |
| Age: 18 |
| Monthly allowance: Rs 1,000 |
| Money skills: • Budgets her expenses carefully to save up to Rs 200-300 a month. • Uses her allowance for everyday expenses and entertainment. • Saved enough to buy herself a phone worth over Rs 10,000. • Planning to start direct selling of cosmetics to supplement allowance. |
| "My parents monitor my expenses, but don't interfere with how I spend my money. Their confidence has made me more responsible in financial matters." |
Setting goals alone is not enough; you have to give your child some direction to reach that goal. Kiyosaki likes to tell the story of a friend who has a teenaged son. When the boy wanted a car and asked his dad to buy him one, the father gave him $3,000 and a year's subscription to the Wall Street Journal, saying that if the boy managed to make $6,000 by investing the $3,000, he could use the money to buy the car; and the original $3,000 would go into his college fund.
The value of credit
So your 18-year-old wants a motorbike and has convinced you that it is only to help him get to college and tutorials in good time. But saving a portion of his monthly allowance will mean that he can afford the bike only a few years from now, by which time he might want a car. What do you do? Introduce him to the adult world of debt—buy the bike for him, but make him pay you back in monthly instalments. Also, it is a good idea to make him save at least 25% of the cost of the purchase. This way, he gets to understand the benefit of making a bigger down payment.
This is also the last chance you'll have to teach your child about the hidden dangers of plastic money. A credit card might seem convenient, but it could get your teenager into hot water if he has little financial discipline. "Even grown-ups who understand everything about finance get carried away with a credit card," says P.V. Subramanyam, a financial trainer with Iris.
Instead, introduce him to the concept of plastic with a debit card. Put his allowance in the account linked to the card and let him run loose on a long leash. Some experts, however, believe that it's better to keep a teenager away from plastic. "A youngster will feel the pinch when he gives hard cash to buy something. This will keep his expenses in check," says Chandigarh-based financial planner Jaideep Lunial.
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| Shweta Nahar |
| Age: 19 |
| Monthly allowance: Rs 2,700 |
| Money skills: • Spends allowance on eating out, clothes and music, still saves Rs 300-2,000 a month. • Built emergency fund of Rs 5,000. • Writes down her expenses. • Understands how cards work, but has not taken any. |
| "My friends and I often discuss ways to save money. We sometimes travel by bus because it is cheaper, but it is difficult to cut back on eating out." |
Monitor spending
Make sure your child keeps you informed about how and where he spends his allowance. It doesn't matter how much he rebels; it's your money and you should know where it's going. The key is maintaining a fine line between monitoring and interfering. "As a parent, I do not interfere with my daughter's spending decisions because I have confidence in her. This doesn't mean I don't look into how she spends her money," says Masood's father.
Unless your child's spending decision is patently harmful, let him use his head and make his spending mistakes. That's the best way to learn the value of money. As a parent, you should guide him on using his money wisely, but don't impose your preferences on him. Let him learn the hard way. It is better he realises his folly of buying a pair of sports shoes priced at Rs 7,000 than depend on you to decide for him. It will also teach him to be responsible for his financial decisions.
Of course, all of this can be far easier if your child is financially aware. But it isn't too late. Besides, he will thank you for it once he grows up, however much he might rebel against the fiscal limits you impose on him now.
Nine Money Skills A Teenager Must Master
How to bank:
How to save:
How to shop:
