Parenthood is a journey filled with countless milestones, from the first time you hold your baby to the day they take their first steps, say their first words, and eventually, become independent adults. Each of these moments is precious and requires your care, attention, and most importantly, your investment. But investment here isn't just about time and love. It's also about ensuring that your children have the financial security to navigate the world confidently. From buying diapers to buying their financial independence, every step you take as a parent counts.

The Cultural Disconnect: Money Matters

In our Indian culture, there's a common tendency to shield our children from money matters. We often tell them that money is not important, believing that it might protect them from becoming too money-minded. Financial literacy is rarely taught in schools or colleges, and our primary focus remains on getting a good education, securing a degree, and landing a stable job. But is this approach truly beneficial for our children in the long run? When was the last time you encouraged your child to do something wild, to take a risk, or to venture into the unknown? Our protective instincts often lead us to restrict their exposure to not only financial risks and opportunities but all other kinds of opportunities too. However, this might not be in their best interest. In today's fast-paced world, understanding money, how it works, and how to manage it is crucial for success. Shielding our children from financial matters only sets them up for potential failure.

Money is inherent but financial wisdom isn't

Not teaching kids about money and then handing them a significant amount when they turn adults is one of the worst things we can do. Money is inherent but financial wisdom isn't; it needs to be taught and nurtured. Without imparting proper financial literacy, what you've built over 15 years for your kids through disciplined SIPs (Systematic Investment Plans) can be lost in just 15 months. It’s not just about burying them with loads of money; it's about ensuring they know how to manage it wisely. Passing on financial wisdom and knowledge is just as important as passing on money. When your children understand how to manage money wisely, they are better prepared to handle financial responsibilities independently.

Here’s why it’s crucial:

  • Empowerment: Knowledge empowers your children to make informed financial decisions. They will be able to assess risks, understand investment opportunities, and avoid common financial pitfalls.
  • Independence: Financial literacy fosters independence. When your children know how to budget, save, and invest, they won’t rely on others for financial guidance, giving them greater control over their lives.
  • Long-term Success: Financially literate individuals are more likely to achieve long-term success. They can plan for their future, manage debt effectively, and build wealth over time.

Ways to Pass on Financial Wisdom:

  • Involve Them Early: Start financial education early by involving your children in discussions about money, budgeting, and investing.
  • Use Real-life Examples: Use everyday situations to teach financial concepts. For example, discuss the importance of saving during a shopping trip or explain the basics of investing when reviewing your portfolio.
  • Encourage Reading: Provide age-appropriate books on personal finance and investing. There are many resources available that can make learning about money fun and engaging.
  • Set Up Practice Accounts: Open a savings or investment account in their name and let them manage it under your supervision. This hands-on experience is invaluable.
  • Lead by Example: Demonstrate good financial habits in your own life. Children often mimic the behavior of their parents, so your actions will speak louder than words.
Step-by-Step Plan for Building a Financial Infrastructure for Your Kids

  1. Set Clear Financial Goals

The first step in creating a financial infrastructure for your children is to set clear, achievable goals. Now, this is completely personal to your and your child’s interest. But few specific examples include:
  • Education Fund: Ensure your child can pursue their academic dreams without financial constraints.
  • Emergency Fund: Create a safety net for unexpected expenses.
  • Future Investments: Plan for long-term financial security, such as buying a house or starting a business.

  1. Start Early

Time is your greatest ally when it comes to investing. The earlier you start, the more your money can grow through the power of compounding. Even small, regular investments can grow significantly over time. For example, starting an investment when your child is born can lead to substantial returns by the time they turn 18. This could mean the difference between struggling to pay for college and having enough to cover all expenses comfortably.  

  1. Choose the Right Investment Vehicles

The best investment vehicle available for kids for their long-term goals is investing in top businesses of India and let them ride the wave of glorious decade of Indian Economy. There are multiple Children oriented Mutual Funds offered by various AMCs, which invest in excellent growth-oriented business in India and abroad. It is advised to avoid guaranteed interest schemes for the kids since buying the word “Guaranteed” costs hell lot of money in the long run as inflation eats up all the growth in the corpus. Hence, say a big NO to the traditional and government backed schemes like Public Provident Fund (PPF), Sukanya Samriddhi Yojana (SSY) or LIC etc.  

  1. Lead by Example

Children learn by observing their parents. Demonstrate good financial habits in your daily life. Discuss financial goals as a family and involve your children in age-appropriate financial decisions. Show them the importance of saving, budgeting, and investing.  

  1. Regular Reviews and Adjustments

Financial planning is not a one-time activity. Regularly review your investments and savings plans to ensure they are on track to meet your goals. Life circumstances can change, and it’s important to adjust your financial plan accordingly. Whether it’s increasing your savings rate or diversifying your investments, staying proactive will help secure your children’s financial future.

Conclusion

Investing in your children’s future is one of the most important responsibilities you have as a parent. From buying diapers to securing their financial independence, every step counts. By setting clear goals, starting early, choosing the right investment vehicles, teaching financial literacy, leading by example, and regularly reviewing your plans, you can ensure that your children have the financial security they need to succeed in life. Remember, it's not just about giving your children money; it's about equipping them with the knowledge and skills to manage it wisely. This dual approach will help them grow into financially independent and responsible adults. So, invest for your kids and in your kids, and watch them grow into financially independent and responsible adults.