Why won’t children learn to acquire financial intelligence

My 3-year-old daughter is much interested to hear stories from me, be it before going to bed or while drinking milk or while having food. I tell her stories on various topics. One day, I will tell her stories on Lord Krishna and the other day on Ramayana. Even she has heard me tell stories from Mahatma Gandhiji’s life. I don’t expect to make an impact on her behaviour by telling these stories. These stories are meant purely for entertaining her. One day, I thought of telling her about how a man unknowingly uses financial intelligence and achieves wealth. This was the impact of me reading books on investment. Almost all these books stress the point of proper financial management by acquiring financial intelligence.

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For people who find the term ‘financial intelligence’ to be new, financial intelligence is the knowledge of knowing ways and means to multiply the money in hand and making it available for generations to come. In short, financial intelligence is not in earning more money, but in getting the maximum returns out of the hard earned money. For maximizing returns, one should know the various options available and choose the best among them. Financial intelligence also lies in knowing the difference between an asset and a liability among the various things that money can buy. Asset is anything that earns money for us. Liability is anything that only makes us spend without any returns. Anything can be an asset or liability based on the transaction. Any loan for which we are liable to pay is a liability to us. But for the person or bank who has lent us, it is an asset. This is because; the loan only makes us spend our money while earning money for the lender. I think this would serve much by the way of introduction to financial intelligence.

Coming back to my daughter, she was curious enough to listen to a new story. This story was about two friends Ramu and Somu who were working under the same boss. Both of them were earning the same amount. Ramu got his pay and gave the entire amount to his wife. His wife bought whatever she could buy with the money and settled the regular monthly dues. By the fourth day the entire amount was spent. Somu retained a portion of his pay and gave his wife the balance. His wife settled the regular monthly dues and purchased only the necessary household items. She had some money remaining with her. Somu kept the retained money in a piggy bank every month and his wife kept it her safe locker, a porcelain jar in the kitchen. Twelve months passed and Somu felt that his piggy bank was almost full. He broke it and counted the money. It was enough to buy an iron box that was heated with coal. He had been waiting to purchase one, all these days. Somu’s wife opened her locker to find that the money saved could purchase coal for 2 more months to come.

Somu purchased an iron box and coal from the market and started pressing some of his clothes. He did a better job, being a beginner. His wife too was curious to learn it and she learned it faster than him. The couple was able to press any kind of cloth. Somu found that he had many households in that area where there were many office goers but did not have a shop nearby to press their clothes. This seemed to be a good opportunity and there was a market for his service. He put a small tin sheet with a chalk piece note stating that they undertake to press clothes at a nominal rate of rs.2 per cloth. For saris and other expensive clothes they decided to charge rs.7 per cloth.

Initially, there were no takers. Slowly, at snail’s pace, the word spread. One brave soul among the office goers wanted to give a try with Somu’s service. Somu thus got his first order of pressing 5 shirts and 5 trousers. He delivered it within an hour. The customer found the quality of service to be acceptable. Somu asked him whether he could suggest his neighbours also. The customer reluctantly agreed. Upon seeing him getting his clothes pressed with Somu, some more office goers enquired him about the service of Somu. He replied that the quality of service was acceptable for the nominal charges collected. Thus Somu’s customer base started growing. Over a period of one year, Somu was having a monthly earning that was more than what he was paid by his boss.

Till then, Somu would press the clothes until he leaves for his job. Once he leaves for job, his wife would continue. Somu felt the need for keeping his money in a safer place than his piggy bank. So he approached the nearest nationalized bank and opened an account with them. By way of making transactions, he started knowing about the different ways of saving his money with a better interest. He realized that the locality next to his also had a demand for the service he offered. He discussed with his neighbour’s son, Kumar and understood that he was willing to take care of the service at the nearby locality. So he trained Kumar on the service. He began to serve the nearby locality.

Somu’s service started becoming a business and it needed only a four-wheeled cart. This was the shop and would be stationed under a shady tree. Kumar became the 50% partner in the business. Kumar was bright enough to identify few more localities where there was a market for their service. They needed to add few more four-wheeled carts, identify reliable people and train them. The same partnership plan was worked out with others also. Whatever was earned by the service at a locality, 50% would go to the appointed person and the remaining 50% would go to Somu. Somu started keeping accounts on a small way. This helped him track his cash flow. When he felt that he had enough cash flow to buy a house, he identified an old house whose owner was desperate to sell it. Somu bought the house and fixed it to suit the living requirements. He then let the house for rent. He made sure that the rent was deposited separately and over a period of 10 years, aggregated to an amount sufficient to buy another house, whose owner was desperate. This way Somu bought a new house once in every 8 to 10 years and rented it. As his cash flow increased, he started buying houses once in every 5 years and rent them.

He felt that his son and daughter were old enough to be in business and trained them. Somu’s son Murugan was shrewd enough to pick it up from his father and soon learnt the nuances of the business. He suggested that they replace the four-wheeled carts with a small shop. So a locality with good demand for their service was chosen and the shop was taken on a monthly rent. He also learnt dry cleaning and introduced it as an additional service. Customers started seeing its benefits and the business grew. Soon shops replaced few more four-wheeled carts. These shops provided new services in addition to pressing. The basic pressing service was still done in all these shops. These shops also started issuing receipts for the payments received. After paying the rents, these shops were able to generate a fairly good cash flow. Somu did not need to work anymore. If at all he wished, he would visit one of the shops and monitor the proceedings.

His friend Ramu all these days had been buying luxuries on instalment and had huge outstanding bills to pay. Every month he depended on his pay to take care of the bills. If anything remained, it was used for their living expenses. Ramu’s family started leading a miserable life. The worst was that he could not sell anything he possessed for getting money. Initially Somu was helping Ramu with some money. But soon he realized that it too was used for buying luxuries. The more money Ramu got, more was spent on buying luxuries. Irrespective of Ramu’s income, he was always in debt. Somu even devised a plan for Ramu to get him out of the debt trap, by cutting down expenses on luxuries and utilizing them for repaying his debts, one by one. But Ramu’s spending habits never changed. In due course, Ramu became hopeless of repaying his debts. Soon he died one fine day. Co-incidentally, it was the last day for Somu also. The only difference was that Ramu left behind outstanding debts for his generations to pay, while Somu left behind enough assets for his generations to enjoy.

This story may not be accurate in the light of reality, as this was narrated to a child. I was comfortable enough in narrating this story to my 3-year-old daughter. This was possible because, children of her age can understand that we need money to buy anything. I didn’t expect her to understand whatever I said during the first time. I then repeated the same story with slight modifications, the next day. She was able to comprehend what Somu did to earn money. As per her understanding, she said that she would buy an Iron box, press clothes and earn money. I don’t say that she was perfect in her understanding. At least, she was able to recollect that doing a paid service is one way to prosperity. This is just a beginning.

The basic level of understanding will help her in a big way as she grows up. As I have observed, children can acquire financial intelligence gradually, if it is fed to them in a way they can enjoy and understand.