at College of Commerce,
Contributor, Otermans Institute
Lecturer, National Institute of Securities Markets
Director, SANT Financial Services
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Personal finance and financial literacy has become the need of the hour, but is still ignored in mainstream education. Be it for children or their parents, planning has become the essence for survival in the long run. Otermans Institute believes that financial literacy and planning should go hand in hand with mainstream education. Such a training will support any individual in correctly planning for their future or for the future of their children. In this lesson, I am recommending a few key tips and ideas for both students and parents, that can be learnt from home and significantly benefit their future.
Real saving with real benefits:
For students, it is key to think about the financial stability of their future, which is often also a constant worry for most parents. So instead of keeping a ‘piggy bank’ where you store all your money at home, students or their parents should open a 'savings' account in a bank. This will not only keep their money safe, but it will also make it grow; if managed well providing a sizable profit for when they need it most. So students, if you are still untrained, use this time you are spending with your family at home to sit with a guardian and request them to show you how and when to fill your taxes or how to open a bank account. If you manage to also open a DEMAT account, which allows you to buy and sell shares, then tell your parents to invest in mutual funds or equities on your behalf. Also make sure to submit any subsequent taxes at the right time.
Planning is key:
Whatever plans you have, make a budget for it and plan it well ahead of time. This will ensure that there will be no wastage of resources and opportunities when they arise. Remember, slow and constant growth assures long-term success and a solid financial foundation; just as the saying goes, slow and steady wins the race.
Instead of taking money directly from your parents, go the bank (an adult piggy bank) and withdraw from your current or savings accounts. This simple change in behaviour will teach you a lot of elements of practical banking and more importantly will train your mind for financial decision making. So the next time you get a gift of cash from friends or family, tell them to send it directly into your bank account. You can also in this way encourage others in your community and family to go into main stream banking early. Maybe, just maybe, in time and with proper saving and planning, you can be able to pay for your college funds, just from school life savings!
Simple planning tips:
Equity & Debt– Parents can purchase shares for you using your DEMAT account with a view of long term profitability. You can encourage them to do so but remember that my advice is to start with purchasing traditionally safe opportunities like purchasing traditionally safe opportunities like blue chip companies, tax-free bonds and direct large-cap mutual funds. You can also consider government bonds.
Saving – Ask a parent to create a Fixed Deposit (FD) for you which will grow your money for a fixed number of years; giving you access to a larger monitory pot when you are able to access it as an adult.
The onus of wellbeing for your child starts with proper financial understanding and decisions making. For instance, small habits of making savings, if done before your children, inculcates an understanding and attitude for saving in their minds. Remember the biggest advantage your children have is time and you can help them start their financial planning and decision making early. More technically speaking, an early start and behavioural shift towards saving will provide the benefit of compounding that can help the corpus fund of a child grow manifold.
Every guardian has an objective for their child; be it for the tuition classes, college funds and even marriage. Luckily today, various financial products like mutual funds, equity, insurance and banking instruments are specially made for children and students. The information on these are pretty widely available and I urge you to look into them and generate an understanding while you are staying put at home during the lockdown. Chances are, the instruments you discover will provide you with a completely different financial planning mindset by the time we come out from this lockdown; the primary reason for Otermans Institute launching this series.
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Three useful tips:
Trusts: In some cases Trusts can be formed for the financial security of your children. Although a slightly complex process, it provides robust and controlled security. To explore and form a trust, you will need the help of expert local financial advisors, a chartered accountant and even a lawyer in some jurisdictions.
Insurance: You can research on Insurance products and reliable local financial advisors on policybazaar.com as a starting point on choosing your child’s insurance.
Mutual funds: It is highly advisable to check with a professional advisor before choosing a mutual fund. However you can visit either of these three open web resources to develop an understanding before visiting a specialist; Morningstar.com , StockEdge.com or Rupeevest.com
We at Otermans Institute understand that there is no one universal age categorising the definition of a child, and this can most commonly vary from the ages of 16 – 21 before a person is considered an adult.
While a lot of discussion can be presented here on the technicalities, owing to the nature of this lesson, I will directly provide you with the quickest solution to determine this and other subsequent decisions for your child’s financial modus operandi. It is absolutely key that you consult a locally registered financial advisor in your country for clarifications before taking a plunge into planning your child’s financial future.
Quick tip: Add your child as a beneficiary to your life-insurance policy, and if you do not have one, make it at the earliest! Making your child a direct beneficiary may involve you making changes to how and when your child can get access to the money. My team recommends having a 'will' or a 'trust' which can help in this process. You should also appoint a legal guardian for the child in case of unforeseen crises; the sudden COVID-19 pandemic can work as a clear eye-opener. Child insurance plans are available in both form-unit linked plans and traditional plans. Please consult a specialist to know more about how you can make your child a beneficiary within the terms of your insurance policy and also about relevant insurance plans for your child.
Don’t lose track of your own financial goals, while you are planning for your children. Keep regular payments for your retirement objective with instruments like provident funds, fixed deposits (FD), systematic investment plans in equities and tax free bonds. Do ensure that there is a contingent fund for the next child or for any emergencies in the family.
For your children, you can invest in equity, debt and also mutual fund schemes through their DEMAT account, as well. After they attain the legal age these instruments can be transferred to them.
Please keep it in your mind that your financial decisions which determine your asset allocation and portfolio mix should be backed by your risk tolerance level. Keep investments and insurance separate.
My team will also do a free review on the portfolio of young parents who are looking to begin planning their children’s future as an #OIagainstCOVID19 initiative, so please keep an eye out for the dates on our social media handles.
Self: Make a 5-year financial plan for yourself that includes with steps you will take and strategies you will be using, like creating a DEMAT account, trading certain types of stocks or creating FDs.
If you are a parent, you can also do a second 5-year plan for your children. These will help you visualise your financial future and get you into a mind-set for financial planning and continuous personal finance monitoring.
Child: Count any coins or money you have in a box and note them in a book or record it in a computer. Give all the accounted money to your parents and tell them to deposit it in their bank, or yours if you have one. Set a goal on the amount of money you want to spend in the next month. Write down your requirements for that month and list them in a sheet; your shopping list will be made for the entire month. If possible you can also check prices and rates from the internet and plan your purchases accordingly to meet your target spend.
Parents: You can collect money from your children and deposit them in a bank account. You can follow this by putting their monthly pocket money payments directly into the same bank account. Ask children about their list of requirements and cross check the rates and contents of the list before making any purchases. You can also buy their first personal insurance policies with their saved money.
Family: If you are able, fill in the paper work for a new DEMAT bank account in front of the entire family. Chances are that a lot of members of the family will learn new skills from it.
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