By Rajeev Yadav
The day of your little one’s departure for higher studies abroad has arrived. It is also time to put the lessons imparted over the years to test. If young one has taken the lessons well, managing the transition, including financial, can be rather easy, else the risk of them taking a flight back home in the near future looms large!
An important question likely to be on every parent’s mind is how ready are they to handle finances independently! Frankly, none of us was born with the knowledge of handling money and finances. It’s a skill that we develop over time, frequently through mistakes along the way that serve as learning opportunities. However, it is not necessary that young people must learn all their lessons the hard way.
Financial education is not taught in schools as a standard curriculum. So, before they enter the real world, it is the responsibility of parents to teach children the fundamentals of money management. Left to intuition or gut, mistakes may be plentiful. It is useful to inculcate a few guiding principles.
Here are some crucial financial competencies/skills for young people.
One of the most important financial skills for young adults is budget planning and management, which is the cornerstone of financial wellness at every age. Simply said, a budget is a tool to track your income, expenses, and where your money is going. And thanks to a plethora of mobile apps that handle all the work for you, budgeting is simpler than ever.
Basics of Bank Accounts
Although it’s doubtful that most of the Gen Zs have ever written a cheque or maintained an account, they should be aware of some basic concepts such as minimum balance, what it means to be overdrawn, the costs associated with overdrafts and service fees, as well as how to access all of their account information.
Recognizing needs vs wants
Young people should ideally be aware of this principle before venturing out on their own for the first time. Like budgeting, it’s a straightforward concept that might be challenging to grasp. Needs are what we most fundamentally require in order to live our daily lives. Rest everything else is a wish. Wants must be put on hold when money is scarce.
The Importance of putting money aside for emergencies
No one expects a newly minted adult to have an emergency savings account that is completely funded and ready to use, but it’s crucial that they comprehend the need for one and begin saving money. Stress the fact that money saved is only utilized in genuine situations, such as job loss, unexpected repairs and essential purchases or medical bills.
Realizing nothing is guaranteed
It’s one of life’s harder truths, but it’s crucial to realize that just because you have a job today doesn’t guarantee you will have it the next month or year. Or that your best friend, whom you decided to live with, is never on time with their portion of the rent. Young people should be better prepared for these realities, which can help decrease the impact of such unfortunate events.
Knowing When to Request Assistance
Financial errors will be made by young adults, some more serious than others. It’s critical that they are aware that assistance, including loan counselling is available and may help get back on track when this occurs.
Young adults must learn about investment vehicles, reserving funds as per risk appetite, time horizon and return expectations. For instance, risk is minimal in high-interest savings accounts, money market funds, and certificates of deposit (CDs) but money shall grow slowly. The value of the portfolio could decrease if invested in stocks, bonds, and mutual funds, but there is also a considerably higher chance of growth.
The Bottom Line
To become an expert at handling finances, keep in mind that you don’t need a degree in finance or any kind of specific training. One can achieve financial security by adhering to a few fundamental guidelines, which serve as a foundation upon which your financial dreams can be built.
(The author is MD and CEO at Fincare Small Finance Bank. Views expressed above are personal)