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Life after graduation
The month of June is traditionally the month of weddings and graduations. Many students across T&T will be moving on from their respective schools to another phase of their life.
There are many who will be leaving secondary school to join the workforce, some who will be leaving for university, others who will be leaving to go abroad and then an older set of graduates who will be leaving their tertiary education program to step into the real world of work life.
It is a well-established principle in finance that children primarily learn about money from their parents. In my experience as a financial adviser I have found that money is not something that many parents specifically and directly speak about with their children with the aim of helping them to develop good financial skills.
During their school life the typical approach is to let our children focus on their studies and the parents will handle the financial affairs. In other instances, parents hold the view that a child either does not need to know (it’s none of their business) or will not understand a particular financial circumstance and so they are not included in the conversations.
A child cannot totally learn about money in school since much of what relates to money is an applied concept that extends outside of the classroom. So, if parents are not prepared to teach their children about money then many children will be leaving home after graduation ill equipped to treat with the many issues that they are going to face in the real world.
Many times a parent will open an account and save for their children. At some stage these funds will be handed over. This may typically take place when they enter university or as they get to a stage in life when they need to own a car or some similar amenity.
The challenge is that as children get to the point of moving out on their own they may know that there is money available to them but they are unaware of the process or the sacrifices that resulted in those funds being available and are not properly equipped with the understandings necessary to make good financial decisions. This can lead to disappointment both for the parent and the child.
There are three aspects to your child’s financial wellbeing.
Your child must have financial knowledge, your child must have financial responsibility and your child must be able to turn that responsibility into financial discipline.
At the end of it all regardless of your level of wealth, in fact especially if you are wealthy, you would want your child to appreciate that it isn’t about having the money to buy expensive things, its about knowing the value of money and how to work to earn the things that you want.
If your child is graduating and moving on with this basic appreciation and understanding then they will be well positioned to deal with life as it comes along. Parents who are reading this and still have children in secondary school should be working to ensure that their children have the necessary financial skills for when they are ready to move on.
Financial knowledge is an understanding of the financial concepts that they need to be aware of in order to make it in everyday life. For example you may have started a savings account for your child but do they understand the concept of saving. Have they been taught that small but consistent accumulations can yield a significant sum in the future?
Have you taught your children the difference between saving and investing and the power of compounding in achieving a financial objective?
Then you have the basics of using an ATM and all the security issues that surround. Taken a step further, the use of a debit card and then a credit card which would include all the security protocols associated with these instruments as well as how to use them.
There are many adults who run up credit card balances that they cannot easily pay off and, in most instances, they would have come upon credit cards without having a proper understanding of how to use it and the issues to consider.
It is difficult to properly use a credit card if you don’t understand the concept of money itself. It is very difficult to make proper financial decisions if a child moving into adulthood does not understand that there is a difference between value and price.
Financial knowledge is about hard concepts that a child should be readily exposed to. After financial knowledge comes financial responsibility and this may take a bit more time to grasp. There is a truth that money is there to be spent. The question really is around when you decide to spend it and on what. This is where financial responsibility comes in and it is not something that you can teach overnight.
Ensuring that your child understands the concept of an opportunity cost or is able to exhibit to varying degrees the skill of delaying gratification are important in demonstrating financial responsibility. This is even more so when children are bombarded with so many advertising messages and where games play an important part in their decision making process.
The ability to stop at a point in time regardless of the amount of money expended to date or the ability to wait to spend tomorrow rather than to spend more today are critical skills to get through the early stages of adult life and will be built upon as they get older.
The difference between financial responsibility and financial discipline is really a function of time. You can be responsible in a moment but carrying out your responsibilities continuously and over time is where discipline comes in. So your child may have been taught some financial responsibility to some reasonable level while in the home. However on their own say at University or in a new job environment there is another dynamic of peer pressure and other similar influences.
Your child can be responsible and work within a budget because they were taught how to do that by you as parents. However under exam stress or even when faced with relationship or other challenges spending money can be seen as a form of release. These also need to be factored into the equation because this is the reality of life. Being able to stay the course through all of life’s challenges is what financial discipline is about. Many people lack this quality but the earlier you start to practice it the better off you will be in the long term.
Regardless of where you are in preparing your child for life after graduation you should at least be aware of the issues that are involved so that you can take some form of action.
Ian Narine can be contacted via email at [email protected]
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