Parents invest heavily in their children nowadays and even though most won't admit it, some view children as their retirement plan. Regardless whether this is part of the plan, most of us hope to bring up our children as exemplary adults.
Thanks to the nature of my job, I have the opportunities to meet many households. The common constant I see in modern day parents is that they love their children a lot and have no qualms investing heavily in them. Sometimes at the expense of their own retirement. Along the way, you get a deeper understanding on how different people view money and financial planning.
Which leaves me wondering, how much of their money mindset would influence their childrens'? After all, I attribute a big part of my money management beliefs to my upbringing.
Here are some areas of mindsets you might wish to re-look into and consider its impact on your own pocket and your child's future pocket.
Instant versus Delayed Gratification
My parents have immense self control in delayed gratification. Anyone following this page long enough knows my family hardly travelled overseas before my brother and I finished university. My mom only started seeing the world after she retired. Growing up watching your parents exercise financial prudence did contribute to my own money mindset.
For instance, I would not frivolously ask for gifts. I limited it pretty much to birthdays or when I did well for exams. I knew that my parents saved money to give my brother and I the best opportunities, hence I'd feel bad if I was being extravagant with their money.
On the flip side, I also know households who may not be very consistent paying their monthly fixed commitments but spend on 'necessities' like a car or short holidays. In my view, if their children are lucky enough to grow up without any unforeseen events, then they will also spend money without sufficient preparation for contingencies. After all, their parents survived through it...
Saving sufficiently for rainy days versus 6 months of expenses
A story that my dad shared will never be forgotten. He told when he was in his mid Forties, he encountered a company retrenchment exercise. Even though he wasn't affected, he was sufficiently worried that he did a wage freeze on himself. As a result, he spent within his last drawn wage at that age and saved up all the increments he had subsequently with no lifestyle inflation.
This prudence runs in our family. All of us over-save. I recalled telling an ex-colleague I hardly make major financial commitments without sufficient financial buffer.
On the flip side, I've met countless of individuals who barely have 6 months of expenses set aside. Sometimes it puzzles me. What do people spend on?
It's not uncommon many of these individuals don't even know they aren't saving enough. Sometimes you hear stories like their parents or family would want to change a new furniture or buy something every now and then, and they are forced to chip in their share thus they can't save... you can see such behavior runs in the household.
Upgrading versus Downgrading
My mom was telling me how my parents mutually agreed they want to ensure they have sufficient retirement funds so they can spend as though they are working when they are retired. As a result, they were very committed to their goal to save and now my mom can comfortably take 2 international trips a year.
Needless to say, if they take such a grounded view for their retirement planning, they also raise us with the same practicality. We take our education and career prospects seriously because we want to ensure we are also financially comfortable.
On the flip side, I've had challenging conversations with people who tell me they intend to downgrade their lifestyle during retirement. Sometimes the downgrading can be extreme and drastic based on the mathematical calculations. Even though I believe humans are adaptable, I question how happy one will really be to live a lifestyle so different from how you live for the past 40 years. Also, what if you fall sick, need a helper and better medical care?
Very often, if the upbringing is one of compromise, the child runs the risk of lacking fighting spirit as well. After all, you can always compromise on the quality of life. Given that your environment plays a big part in shaping you, children raised in such environment need to be very lucky to find friends who can influence them otherwise.
Being financially conscious about your wealth situation versus being financially apathetic
Another aspect that my parents are pretty active in is their desire to ensure that their money is working harder for them. As a child, I've accompanied my parents on many banking trips. Even though their financial instrument is as simple as fixed deposit, my mom told me it was during a period where FD rates were double digits and many people did not want/know how to make full use of such instruments.
My parents grew up with modest backgrounds and they knew wealth had to be built by active saving. One story my dad likes to share is how he opened his first bank account with $50 back when he first started work. He said it was a little embarrassing but he didn't care, it was all he had back then. As children growing up with these stories told to us, we know the money we have amassed over the years is a result of sheer sacrifice and active wealth management. You don't take money for granted even though we never really gone through a similar hardship.
Parents who do not educate their children on the importance of wealth management often raise children who might have good incomes but indifferent attitudes towards money. It might not be totally detrimental but it might have an implication on the long term retirement needs of the individual in the future. I've also seen cases of people who grew up to earn a good income but have very poor money management due to the lack of money management awareness when they were younger.
Summary
This article is really an attempt to challenge existing beliefs. It is also meant to provide thinking points to ponder. Ultimately, if parents invest so much in their children, then it'll be a really sad outcome if the children secured bright futures to earn big bucks but can't manage it. It's even more unfortunate if the child does not fulfill their potential and parents also sacrifice their retirement plans to groom their kids. If you hope your children can be your retirement plan, then it'll be a smart to inculcate the right money and character values so that they can grow up as valuable members of society and also want to look after you.
If you would like to explore how to cater for your child without compromising your retirement planning, please speak with a trusted advisor. You can also drop me a message if you would like me to help you with it.
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Disclaimer: The content created are based on my personal opinions and may not be representative to everyone or any organisation. If you have any doubts or queries pertaining to insurance or investment, please seek professional advice from a trusted adviser in an official setting. You may also reach out to me if you do not have a present adviser using the message box under 'Let's Talk'.
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