What did your school never tell you about personal finance?
Indian schools are mostly the place where many of them have the best of their memories and best of their knowledge. We learn about different concepts, theories, and subjects like physics, chemistry, history, maths, and above all so much about unity, discipline, expectations! One thing that is surely missed amidst all of these is understanding or rather I must say a glimpse of the real world. Don’t get confused, I am directing you towards the most important aspect of one’s life that is Personal Finance. How we can earn money is definitely taught but the importance of sustaining it is ignored! Many know what Money is, what is its use it? But how many of us have been taught in school the lessons of Personal finance which mainly consist of learning the difference between Savings & Investment, nature of Inflation and avenues of investment, and so on. I won’t say changes are not happening, but I wish mainstream schools start incorporating real-life lessons and give teaching a much-needed makeover. As it’s been said, “Learn from others’ mistakes, to avoid your own.” Today, I want to call your attention to some crucial learning on Personal Finance in general that unfortunately school never tells you. Early the better, latter the bitter The thumb rule of managing finance is “Earlier you start the better you get.” Start with the mindset of savings from the beginning, right when you start getting pocket money. If you have passed that age then teach your kids the importance of delayed gratification. Ideally, we waste a lot of time for the right age to arrive, so to start saving or investing. Practically speaking, we all know responsibilities increase and so does pressure when the so-called “right age” knocks. Investing in small chunks is easy when all your money is for games, movies, and dates. Think of this activity as an internship where you are still learning but feel as if you are grown up!!
Saving vs Investment We all know, the digital world has made learning accessible within a reach of a click. In fact, sometimes it’s too overwhelming with the ocean of information available to us. Now knowing the differences between savings and investment is an easy task. There are many who are still struggling though. It is said, saving is for our short-term needs and investment is for the long-term, but it can exactly be vice-versa too. We need to understand our short-term, mid-term and long-term goals and accordingly sieve the earnings into baskets of investment and savings. Avenues to do that are many but without clarity on goals, doing random investments is completely unadvisable. Inflation“Mehangai kitni badh gayi hai!” We often have heard this line from our parents when we were young. But what is Inflation? Did our school ever tell us about it? One can get all types of definitions now, online or in books but to make it easier to comprehend, Inflation is like that mechanism that slowly gobbles up our savings and brings us to a vulnerable state that reduces our purchasing power. It is important to know about how inflation works, especially a much-needed term while one is planning to save. Here when digging deeper, it gets clear that savings in the bank will not be enough to beat inflation. One needs to understand avenues of investment to do it. Liabilities Being in college we all learned about assets & liabilities as of the basic understanding. And unfortunately, if you are a science student in India, this lesson holds no grounds. But it was only limited to companies’ assets and liabilities to make P&L Balance sheets. However, many of us were never told that there are personal liabilities or assets that need to be taken care of in the future. There is too much pressure already built around the word ‘liability’. First, let me reduce that. Asset and Liability in personal finance go hand in hand. Many of us cannot create assets in today’s life without the help of liability for eg: buying a car or home with a loan. We build assets with the help of taking liability on us. The thing to learn here is what is a good liability and what is bad. Here we need to garner more knowledge about asset and liability management for which crucial thing to learn is budgeting. If you need help doing this, the best is to have a financial planner beside you to guide you. Wants vs Needs Budgeting brings me to the topic of knowing the difference between wants and needs. Like I spoke earlier about delayed gratification. Many of us survive in an environment of instant gratification rather than a delayed one. Therefore we forget this leads to too much pressure on ourselves or our parents and even schools fail to teach the difference between wants and needs. For instance, no school has ever taught the importance of emergency funds whereas more than 45-50% of Indians are not equipped in case of emergency. Whereas E-commerce sales have increased from 30% to 40% in the last year. It’s alarming that people are busy just shopping but not saving. It does not mean I don’t shop but I want to emphasize the importance of balance in doing both.
Changes happen gradually but we need to be a part of that change! Bring in this thought from the beginning, “ so what if the school did not teach us! We can start by teaching our kids – the importance of personal finance.”
