August 31, 2018

Our children and the changing color of money

Sameer Datye

Head of Business Development Insurance and Wealth management, Tieto

When I was younger, money was real- it was coins and notes. It was tangible. Transactions were tangible and comprehensible. With money turning plastic and even virtual, children today find the concept of money a bit vague. It is not strange to hear the child say- if you don’t have money, just get it form the ATM or pay with the credit card. I am sure “just touch the phone” is not so far way either.

How we help our children comprehend the concept of money and help them understand the ways to deal with it needs to keep in tune with changing times. Some of the fundamentals will be the same that we and our previous generations understood. However, the new twists to the tale also need to be included.

There is no free money! Twist: It can be generated, earned and at times also free

Beyond the traditional thinking of working ‘hard’ for money, it is necessary for our children to be exposed to the fact that this traditional approach might not pay as much dividends going forward as working ‘smart’.  Many ‘non-traditional’ avenues of earning money have opened which the earlier generations could not have ever imagined. It might be that you are “given money” for reasons otherwise- e.g. for watching ads, playing games, networking, allowing your computers unused bandwidth to be used by somebody else etc. It might be smarter to keep all the options of generating money open.

Money doesn’t grow on trees / on its own! Twist: Some smart investments grow on their own

Oh! how many times have we heard the exclamation- “money doesn’t grow on trees”- from the older members of the family. It might be time to change the rhetoric to – “Invest smart and watch your money grow”! Or if you are an adherent believer of the cryptocurrency future like me- “make sure it being mined nicely!”

Money cannot buy happiness! Twist: Money will facilitate happiness

Happiness is an intangible concept. More often than not, to be able to be happy, we need to do things that will generate the positive and glad feelings. If you want to go on vacation. if you want to be on the beach in warm weather, if you want to skiing down the slopes. if you want to have an evening of Netflix, if you want to do nothing… or whatever… it comes at a cost. Without the ability of creating exchange or a transaction that money can afford us, we are pretty much stuck an incapable of being happy!

Money is not everything! Twist: Money is super important

It is difficult to imagine the value of things without the common denominator of money. Value in our society is pegged against money. I know this sounds really brutal, but when I way that “I would rather sit in the park and not work for money, because money is not everything”, the chances are that I might have enough money already and hence I can afford to sit in the park. A person who has bills to pay needs to be working and not sitting in a park. Moreover, the same person who wants to sit in the park too needs to first work for it in order to be able to afford it.

You don’t need it! Twist: Can you afford it?

The child says, “I want the new iPhone”. The parent responds, “You don’t need it! Your existing phone is perfectly fine!”. The fact is that the child wants to “upgrade”. She needs the upgrade, not because the previous phone is not working, but it is not generating the same value that the new iPhone is promising to deliver. it might be real value – speed, storage, functionality or then perceived value- form, design, desire, peer pressure etc. A more appropriate response might be to ask the child if she can afford the new iPhone. What value has she to trade for the same? Has she saved money or generated money to afford it?

Save money! Twist: Spend money but be willing to sacrifice/trade-off something

The concept of opportunity cost will really help our children align their priorities. It will be smarter for them to understand that everything comes at a trade. It is their choice if they want to trade the ice-cream for the candy. Both are not possible. If she wants the new iPhone which will be launched next September, she needs to figure out a way to afford it. It might be a good idea to get in to the habit of saving- so she will have the money to spend when needed.

Debt is bad. Twist: Debt is a tool to generate investments

Traditionally debt is a phenomenon that needs to be avoided. But in reality, debt could also be leveraged as an investment. I accept debt in order to get an apartment. The cost of owning the apartment is lower than renting it. Hence, it makes sense to accept that debt. The child can accept a loan at 6% interest in order to make investments. She is confident that ROI will be 10%- because I have promised her. The debt is simply a smart way of getting capital to make more money.

We need to unlearn our understanding of value & money and relearn with our children. In a not-so-distant-future where crypto currency, robotics, Machine learning, automation, VR/AR etc. are fully integrated in our lives, the definition of value will not remain as tangible and absolute as it is today. It will be rather superfluous and needing creative thinking in order to comprehend and use in daily lives. Exciting times ahead and a second chance for us to be children all over again!

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