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Why you should not invest like mom and dad
Young
investors have vastly different risk profiles than older investors. Yet,
parents tend to impose their financial preferences on their children. The
perils of this approach explained.
Last week, I met a young man who was a few years
into his first job. He was not asking the usual questions about where to
invest. Instead, he wanted know how to get his parents off his back. Before
you jump to a quick conclusion, I have to add that this man shared an
excellent rapport with his highly successful parents, whom he respected and
adored. The problem he had was that their highly involved and intense
parenting was smothering his adult life. He was not the spoilt brat with an
attitude of entitlement to his parent’s wealth, but an idealistic young man
keen to be on his own. Parents mean well, but their protectionism may
perhaps not be helpful.
In the modern age of parenting, children are
trophies. To admire and to show off. It begins with the cuteness of the
toothless grin that is diligently video-filmed, extends into the
broadcasting of scholastic achievements on Facebook, and culminates in the
gloating about job and salaries. While a toddler’s selfesteem is boosted
with the appreciation he gets, a 24-year old squirms in embarrassment when
parents talk about his income.
Many modern parents wear the scars of their early
adulthood, when their income was handed over to the family elder, and used
for satiating the multiple demands of siblings and relatives. The high
position or salary of their child is their trophy, the ultimate stamp of
validation that all their decisions were right. They are too proud to ask
their children for money, but all the same would like to know how much they
earn.
Parents should recognise the income question as the
first intrusion in what should be a personal affair of the individual. Rule
No 1: Desist from asking about how much your child earns. Even if you do
get to know his salary, do not spread the word and don’t compare notes.
Parents fail to see that the lifestyle they afford
to their children comes from their having climbed up the ladder of success.
Your child needs to build and own her success story. By being anxious about
your children’s comforts, you deny them the opportunity to build on their
own. Your child may be keen to live with friends in a smaller apartment,
which may not have an air-conditioner. Your child may feel uncomfortable
living with you and crave the freedom of her own space. She may be willing
to trade off the luxuries of your home for the joy of being on her own.
Stop making the decisions about where she would live, what she would wear,
how she would commute and what she would eat. Encourage her self respect by
desisting the temptation to ‘chip in’ with monetary help. Our young earners
had been consistently told that they would save on rent, food and other
utilities if they stayed at home. They are unable to win the argument in
their own favour.
The paternalistic behaviour extends to financial
decisions as well. Parents take upon themselves the investment decisions of
the earning children. It all begins with helping file the tax returns and
doing the paperwork, and slowly creeps into complete ownership of the
portfolio. The risk profiles of the modern youth and that of the parents
could be vastly different. Our young man wanted to do a SIP in an equity
fund, while the father insists that the Public Provident Fund (PPF) is a
better and safer option.
Many youngsters have been forced into buying a
house very early in their earning life. Parents have mostly pushed this
decision of “compulsory saving” and the EMI has become the albatross around
their necks that interfered in every single decision, from changing the
job, to moving location
and even getting married. Refer your
child to a good financial adviser whom you also trust. Let your child take
his or her own financial decisions. Some well meaning parents take on a
part of their child’s financial burden, by paying the insurance premium,
education loan, EMIs for the car, and any other commitment that they
perceive would be burdensome for the child. This ruins the possibility of
the youngster developing financial discipline in his life. What begins as
“support” soon becomes entitlement. Youngsters, who are unable to manage a
lifestyle that fits into their income, use these props. While the
self-respecting individual might fight a fierce battle to keep the parent
off, the weak-hearted succumb to the temptation of having more to spend.
Slowly resentment creeps in. If the idea of being hard-hearted with money
makes you feel like a lesser parent, make sure you have defined the limits
of your generosity well in advance. If the child whose premium you paid,
later fails to pay your hospital bills when you age, you might turn bitter.
It might be a better idea for you save up your money today so that your
future medical bills do not have to depend on his income.
There are parents who have recognised the fact that
their child’s social life would not include them; but they are unwilling to
see that the child may like to be excluded from the parents’ social circle
too. If teenagers suffer boring dinners with their parent’s friends, young
people are mercilessly dragged into worthless career counselling sessions
with those whom their parents see as successful. Parents continue to hope
that the child would be inspired, encouraged, and enchanted by the former’s
friends. Even as the friend is trying to wiggle out, eager parents are
asking for internships, interview calls, promotions, change of location, or
any other favour their influential friend can bestow on their child. Your
child may be old enough to have his own network that he prefers to lean on.
Stop tagging him along.
In my mind, what counts as the ultimate harmful
indulgence is the mindless acquisition of assets in the name of the child,
and the incomplete bequest of the same. There would surely be a large
number of two-bedroom flats in aging apartments across the country, that
have been left behind by parents to NRI children who have no time to come
back to register the flats in their names. The properties, investments,
deposits and other assets have been created as buffer, so the child feels
secure and has something to fall back on. These decisions might have been
made without consulting the child. The worst part is that the will, its
registration, or the nominations are incomplete in many cases. The bequest
turns into a painful process of claiming assets that were fondly built, but
useless and poorly bequeathed.
Underlying all these well-meaning and eager
behaviour is the overwhelming parental angst to ensure the best for the
child. But have you allowed the space for your child’s preferences? And
waited for him or her to ask and explicitly seek your help?
Uma Shashikant
The author is Managing Director,
Centre for Investment Education and Learning. ET130923
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