“People from different generations, raised by different parents who earned different incomes…born into different economies, experiencing different job markets…different degrees of luck, learn very different lessons.”
Morgan Housel’s recent book Psychology of Money is perhaps the most incisive take on personal finance in recent times. Our economic realities, including the availability of information and values we use to benchmark have all changed over the years. This has played an important role in shaping how we spend our money. When I track the evolution of money habits in my family – from my father, to me, to my kids – I become more and more convinced about this argument.
People born before the 90’s have experienced scarcity at a different degree than today’s generation.
The most basic amenities like gas and telephone lines were not easily accessible to them – imagine needing a month for a telephone line. Sounds bizarre now! It sounds bizarre now! My father who worked in the Textile sector, believed he was only good at one thing – textiles.
Me and my generation had the best of both worlds – we learned from our parents’ scarcity and steered towards wealth accumulation and multiplication. We know that we are capable of being proficient in five other professions, which has helped our longevity.
Today’s generation is far improved on all measures, because they have abundance in choice – of education, jobs, sources of income, etc. They have equal access, and they compare their abilities to others. They are aware that they have many career options. Information has increased their confidence as well as enabled them to easily spend. They see consumption as a way to be more than conservation.
To put it differently, my father who was born at a time when opportunities were rare and entrepreneurial aspirations weren’t the norm of the day. My father was a man who only ate for the unavoidable. My daughters are more confident in spending because they were born in the digital age that made it easy to access everything. Where patience was a virtue for my dad’s generation, my kids value a more real-time approach. Cryptos are now the preferred financial instrument.
What are the most important things our kids need to know about money
a. Want vs Need:
It is important to know the difference between necessities or luxuries. This can only be done by being disciplined. A simple method is to budget your money – allocate a certain percentage of your money to savings and the remaining for discretionary spending. Keep in mind that your savings should equal your expenses.
b. Live within your means
Avoid impulse spending or excessive credit. If you keep track of your spending for the past few months, you’ll be able to identify which expenses are really critical and how they can be reduced. In the long term, it can be a problem financially if you depend too much on debt in order to live a life that isn’t possible.
c. Increase your wealth
Consumption is important. Enjoying your hard-earned cash is key. But it is not ideal to throw caution to the wind and fall into the ‘YOLO’ trap. Consumption is important but must be managed carefully. Equally important is saving a portion of your income and multiplying that money for future goals.
d. Be smart about your debt
It is impossible not to create debt as you move through your life. It is possible to get affordable debt to make necessary improvements in your life. It is possible to buy a house or a car with debt if your income allows. But racking up a massive debt for discretionary choices like buying a second house are bad decisions if your income can’t support it.
What parents must do better
We need to start recognising that our children value responsibility and are value-driven. Bad money habits are easy to catch – who here didn’t suffer from stupid financial mistakes when they were young? It is crucial that our children learn financial responsibility. A lot of us learnt how to save from our mothers. They kept some money aside every month in gulakhs, kitchen utensils, and other small things. We barely discuss money now with our kids. However, children are more intelligent than we think. Talking about money should be constructive and open. Because at home is where everyone learns money skills. Making financial planning inclusive makes it easier to pass good habits on to our children. They will be able to learn everything from budgeting to bad debt management. We often forget to connect Money and Parenting. It is time to realize that this is something that is not taught in schools, but is learned at home.
Disclaimer
These views are solely the opinions of the author.
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