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Stop telling your children you will take care of everything

LiveMint logoLiveMint 10-07-2017 Mrin Agarwal

With the board exam results being announced, I have been hearing and reading through social media about the college plans of my friends’ children. Of course, being Indians, almost all parents want to give the best education to their children by sending them to colleges of their choice, irrespective of the costs involved.

A study conducted by HSBC in 2015 found that Indian parents topped the chart when it came to parents showing maximum interest in sending their wards abroad for postgraduate studies. The study also revealed that at least 92% of Indian parents would consider paying more than they can afford for an international education. 

Most Indian parents would not expect their children to contribute even a minimal amount towards the education expenses. Indian families have always taught their children to focus on academics and not be concerned about how the studies are funded.

At one of my programmes, I met a woman who was in her early 50s, and whose only son was studying at a prestigious college abroad, with the overall cost coming to Rs75 lakh a year. To be able to fund her son’s education, she took up a better-paying job in a city different from her husband’s. Despite being in senior positions and earning well, they were finding it difficult to manage their finances because of this one big expense. The son, meanwhile, had his own challenges of adjusting in a different environment and having to live within a particular budget. Earlier, when he was in college in India, he got pocket money and the parents were ready to top-up as and when required. So, he never really learnt living within a budget. The entire situation had taken a toll on the family emotionally as well as physically. 

Most parents are happy to sacrifice their comforts to ensure their children have the best, but children do not necessarily appreciate what parents have to do for this. What the parents don’t realise is that they are making their children financially dependent on them when they should be becoming self-sufficient. This is why most youngsters lack money management skills. 

The protective attitude also brings a false sense of entitlement in children. People should also realise that if they keep the children out of money matters, they may have to learn managing money the hard way and at an advanced age, when the parents may not be around for guidance. 

The other issue with parents spending beyond their means for education is that they are forgetting about their own dreams and goals, especially their retirement. Another survey done by HSBC in 2016 found that funding education for children was more important than saving for retirement for Indians and a large percentage were willing to take on debt to fund the education. 

These days, many younger parents are happy to live life based on loan instalments. Many parents fund expensive summer camps and there is no dearth of toys, gadgets or anything else that a child may want. They forget that children emulate parents’ spending and saving habits. So, even after some children start working, they continue to be financially dependent on their parents. What are some of the steps that parents can take to make their college-going children learn financial responsibility? 

—Tell children how much is being spent on their higher education, so that they appreciate the effort taken by parents to provide them with the best education. Speak to them openly about the choices you are making in order to fund the education. In case the college fees is being funded through a loan, give them an idea of how the loan affects the family finances. 

—Maintain a neutral stance. In my own case, my parents did not make me feel that I was burdening them nor did they show that it was easy for them to finance my education. To my mind, this is the best way to teach children restraint in financial matters. 

—Set financial saving goals on pocket money and give an incentive to children to save. Have a pact that if the child saves an X amount, you will give an additional X amount and create a small corpus to fund any large-value purchase. With the parent’s extra contribution being dependant on the child saving from pocket money, and the excitement of being able to buy a desired item faster, children will automatically start saving. 

—Make children work for money. I recently read about a teenager in the US who part-funded her college education by working. She said, “If it is given, it goes away fast. If it is earned, then it stays longer.” The value of anything received easily is not as much as when it has been worked for. In India, teenagers can intern in the retail or entertainment industry apart from educational institutions, NGOs and other places; and parents should encourage youngsters to work while at college. 

Instilling financial responsibility helps children think independently and have the resilience to face adverse situations. While all parents want their children to get the best education, it is imperative for them to know where to draw the line and ensure that they do not fund education at the cost of their retirement savings.

Mrin Agarwal is a financial educator; founder director, Finsafe India Pvt. Ltd; and co-founder, Womantra

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