Father's Day is a celebrated across the world with the objective of honouring the contribution of fathers. At the same time, it can be a good opportunity for the fathers to engage in a meaningful discussion with their children. The primary concern of parents is to ensure that their kids are financially independent. When your children are on the cusp of starting their careers, it can be a good time to help them understand how to manage finances. This will not only give them a good financial foundation but discussing with them about money will be crucial for their personal development. I feel discussing these 3 important financial aspects with children can help them in making prudent investment decision in future.
1) Set a discipline for savings and investment
Explain to your children that it is important to invest and save money in a disciplined manner. They can start with investing 1% of income and then gradually scale it up to 5-10%. Most people can easily save 5-10% of their income without feeling the pinch. Eventually, they should try to save and invest at least 25% of income. This will ensure that, over a period of time, they will have a sizable corpus to achieve their goals. They will also be able to make a diverse portfolio by adding other asset classes. It'll also help them build tangible goals for which money is required. If your children start saving early on in their careers, long-term goals such as buying a house, planning for a family and saving for retirement will be an absolute breeze to achieve.
2) Quantify the inflation impact
It is very important that they understand the impact of the inflation on money. Money loses value over time due to inflation. A thousand rupees invested at the beginning of a year may be worth only Rs 930 at the end of the year, when adjusted for inflation at, say, seven per cent. This is effectively a decrease in the time value of money. It is always better to advice your children that their choice of investments should be focused on beating inflation.
3) Filter the advice you receive
A lot of individuals believe that financial planning is not difficult to achieve. They look at a few DIY videos, listen to some market chatter and they believe that they have built an expertise in picking stocks. Hence, as a parent it is very important guide them to identify unnecessary market tips and reliable financial advice. Most importantly, get them in touch with a financial advisor who will help them understand the fundamentals of wealth creation. Always remember, teaching your children about money at any stage is going to take time on your part. But if you want your children to know how to successfully manage their money when they get older, take time out on this 'Father's Day' -- I are sure it will be worth it!
Rahul Jain is the head of Personal Wealth Advisory at Edelweiss.