- September 14, 2018
- Category: Financial Planning
Your parents are your well-wishers, no doubt. It is natural to take their advice at face value because you think they are experienced and cannot go wrong. While they don a lot of hats for you – parent, friend, teacher, etc., do not let them be your financial advisor. Chances are their views on money, career, housing will not be applicable to your life now. Although they would be wise in advocating the basic tenets of financial discipline – regular saving and investing, not all financial advice offered by them would be worth heeding. There are high chances it could affect your finances.
Here are some of the things your parents typically advise which you should not listen to:
Settle into a stable job: Your parents lived in a different time. Most of them were in secure government jobs and spent their entire working life in one company. Such stability suited them then. The job market has evolved and is more dynamic now with a million choices and increased competition as the pool of new graduates grow every year. What was unconventional earlier has become very common now like a career in sports, modelling, acting, theatre, music, blogging, start-ups, etc. Many people today are multifaceted handling different careers at a time. Also, redundancy is common in many of the jobs with increased automation today. It is important to stay updated and continue investing in your job skills. You – the millennial generation do not just want to work in the corporate world but aspire for a career which will increase your earnings potential manifold. You prefer to experiment with different career choices and are willing to take risks. Your parent’s career advice thus may not be relevant in today’s competitive times and in your best interest.
Fixed Deposits are safer than equities: Your parents are likely to dissuade you into investing in equities and prefer fixed deposits and postal saving schemes instead. This may stem from the fact that they had a bad experience in the stock markets or perceive equities as gambling. It is natural for them to be conservative and harbour bias towards the safer bank deposits in which they invested throughout their entire working life. They also had limited investment choices, limited information and lacked general awareness. Unlike your parents, you cannot afford to invest in just fixed interest options. In present times with rising inflation, lifestyle choices, dynamic career, etc., you need to diversify into equities which would give your investment portfolio the much-needed growth. In this digital media age, you have all the information you require on financial products through electronic and print media, social media forums, finance blogs, investor awareness workshops, competent financial advisors, etc for investment guidance.
Buy real estate – always rewarding: Ironically, while your parents would be averse to equities, they would commonly advise you to invest in real estate. Be it a piece of land, vacation house or a commercial space, your parents will opine that property prices in the long run always move up. Bear in mind that real estate investment is risky like equities. It involves big-ticket investment. Plus, a lot of things can go wrong including location call, builder fraud, legal dispute, etc. There will be maintenance expenses to bear lifelong and eventually you may have to sell in distress if it doesn’t earn any rental income for you. Your parents good experience in property investment may not necessarily repeat well for you. You need to first introspect your financial situation after considering your loan paying capacity, liquidity situation in context of your short term and long-term goals, purpose of buying property, etc.
Invest in insurance policies: The moment you start working, your parents are likely to prod you into buying a LIC policy, preferably from a friend/relative. LIC for them means safety, security and guaranteed returns. Your parents perceive LIC policy as more of an investment rather than insurance. However, mixing life insurance with investments is likely to keep you underinsured and yield sub-optimal returns. It is prudent to keep both of them separate.
Buy small amounts of gold regularly: Another typical advice your parents will give you is to buy gold regularly, either in the form of ring, coins or jewellery. That too during auspicious occasions when gold prices are typically high. Regularly storing huge amount of physical gold/gold jewellery in bank lockers is not wise. Secondly, accumulating gold and investing in it are two different things. The rationale behind putting money in gold needs to be clearly defined.
To conclude, parents may not always be the best examples to follow when it comes to financial advice. Their biases would probably stem from their experiences or even societal pressure. Appreciate their advice but at the end of the day you need to make your own financial decisions.