Outdated financial advice parents should avoid giving

Share on whatsapp
Whatsapp share
Share on twitter
Tweet it out
Share on facebook
Share on FB
Share on linkedin
Post on LinkedIn

Several of the 50 year-plus investors I know are eager to initiate their millennial children into investing as soon as possible. In their eagerness, they help their children with the ‘first steps’. Sadly, those steps often constrain or cripple the millennial’s financial journey. It is terribly hard for me to tell the earnest parent how he (it’s mostly the father) has given advice that is not only outdated but simply wrong in today’s environment for two reasons: one, the millennials lead a very different working and personal life from their parents and therefore have different financial needs. Two, the range of financial products and options available today are dramatically different from what their parents had when they started their careers. I seldom get to tell them this but here’s a list of such advice and why they should not be repeated.

Caution: Your advice may be outdated

Buy an insurance policy first

 With an average Indian, no investment journey begins without a policy and policy usually means LIC Pension Policy unless stated otherwise. A pension policy where one would get a handsome Rs 8000 per month after 25 years. Now, what exactly will the child do with just Rs 8000 a month, 25-35 years hence, even under a low inflation scenario? Even assuming it will just add to the rest of his income sources, what is the return? It may sum up to some measly returns of perhaps 4-5.5%! It is a different story entirely if you advise him to buy a pension policy soon after retirement. But tucking away his early earning years’ savings now in low earning products? That’s sad.

The insurance policy a millennial needs may be very different. A term policy, if and when they have dependents, yes. And there may be others. For example, an insurance that helps sail through job loss or on diagnosis of major medical illness and so on. Let your children figure what they need before you tie them down by gifting their first premium for their pension policy.

Have a ‘relationship’ with your bank

 If parents approved of any relationship of their millennial kids, it must be with their bank ‘relationship manager (RM)’. Investing in products suggested by the RM is important from the father’s perspective because one needs to be in the good books of the RM. For what exactly? Unlike those days, the millennial is unlikely to visit a branch for the rest of his/her life. There will be no occasion requesting for cheque clearance or asking for change in denominations of 10s and 50s; nor is a higher education loan dependent on how much you invested through the RM. Your millennials do not have to blindly listen to the RM’s advice. It could mean tying oneself to products one didn’t know had a lock-in, products that would incur high costs if exited early or that are sold as high dividend products, not knowing the risks involved.

Anywhere between Rs 1.5-2.5 lakh per annum of a young earner’s income is locked into investment products that are of little relevance to his/her financial goals. Let your millennials explore their journey and find what suits them. They could go the traditional way to seek an advisor offline or through online channels or be a do-it-yourself investor by spending time on the web. But let them not invest for relationship’s sake.

Buy a house right away  

“Real estate prices only go up, so I asked my son not to delay purchasing a house” said an investor known to me. After all, the logic goes, the son has no commitments and can well pay his EMI and finish them early. But let’s get a few facts right: one, if you plan to leave your house to your children (most of you will), they are not going to be homeless. Second, you have no idea in which state or country your children are going to settle in. Third, if your children pay an EMI now, that will leave little surplus by way of savings for the next 15-20 years. Exactly what are they supposed to do for the rest of their life’s goals and aspirations? Fourth, EMI is not equal to rent, please! You could have a spacious 1500 sq. ft house and pay a rent of one-third (or less) the cost of its EMI. Purchasing a house before settling into a career, before marriage or even before having kids (there is an ‘if’ component to all these in the millennial age) is not a good idea. And please remember many millennials give up their jobs just after a few years to do their heart’s calling – be a stand-up comedian, travel and photography or be an observer of people. Call it crazy or deep, fact is they may not even work like you did for the next 15-20 years after they take up a job. Let them decide what debt they want to take up.

And please don’t even think you are being a bad parent by not advising them. You will still have enough to advice on their spending habits (a new mobile every year!) and their not removing their headphone the whole time you’re talking to them!

This article first appeared in The Hindu dt. March 31, 2019

Share on whatsapp
Share via Whatsapp
Share on twitter
Tweet it out
Share on facebook
Share on FB
Share on linkedin
Post on LinkedIn

More like this

Please note that any specific queries on any of our recommendations will be answered ONLY through email. If you are a subscriber, please mail contact@primeinvestor.in.  Only general queries or discussions will be answered through the comment section of the blog. For full details, please refer to this post – How to communicate with PrimeInvestor.

9 thoughts on “Outdated financial advice parents should avoid giving”

      1. Good article for parents. Right now buying a house could be one of worst financial decision by millennials as now changing jobs is essential for your growth. House is a requirement after retirement when you want to pass the rest of your life.

  1. LIC policy does not mean by default pension policy. Please see LIC annual report to see what kind of products are being sold in terms of amount of money. It is by far money return policy (where most of premium comes back at intervals of short period) and policy become equal to term at time of refund
    Buying house is good from many angles
    1. You are not paying any kind of tax on accumulation (Fixed deposit etc) till you have refunded the loan
    2 House prices in India have risen more than inflation on rolling 5 year return basis
    3 Your rent is frozen (equal to emi in manner of speaking). House which i purchased (paying 20 lakh downpayment and loan of 30 lakh, meant emi of 27000) hardly more than 25000 rent at that time (no tax on fd of Rs. 20 lakh too). Current rent in the area is 70000

    Children can buy smaller house to build capital for larger house. With rising longevity 2 bhk house may not have space for another young couple

    1. Hello Sir,
      thank you for writing.
      1. Buying house is not he only tax effficient approach to investing 🙂 Holding equity can be far more tax efficient and yield higher returns as data suggests. We are not asking young folsk not to buy a house. The article says, let hem decide, not the parent!
      2. Which regions’ house price are we talking about here? Chennai is vastly different from hyderabad from bangalore from gurgaon from pune. Yes, it may beat inflation but what if other asset classes beat it? Why go overwieght on one asset class and lock in all savings through EMIs?
      3. Rent and EMI are NEVER the same. If thet are, youa re probably overpaying rent. A Rs 25,000 rent can fetch you a 1200 sq ft house in chennai or bangalore or even bigger in hyderabad. A EMI for this house will e upward of Rs 70000 for a 15-year period. And even a 5% rent hike every year, will end up with under Rs 52,000 of rent per month.
      With rising logevity, I think there will be very littl space overall 🙂 People will have to live like they do in Japan or Mumbai 🙂
      thanks for participating in the comment section! 🙂

Leave a Comment

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Register for FREE!

Gain instant access to more PrimeInvestor articles, researched products, and portfolios

The essence of PrimeInvestor

Register for FREE!

Gain instant access to more PrimeInvestor articles, researched products, and portfolios

Legal Disclaimer : PrimeInvestor Financial Research Pvt Ltd (with brand name PrimeInvestor) is an independent research entity offering research services on personal finance products to customers. We are a SEBI registered Research Analyst (Registration: INH200008653). The content and reports generated by the entity does not constitute or is not intended to constitute an offer to buy or sell, or a solicitation to an offer to buy or sell financial products, units or securities. All content and information are provided on an ‘as is’ basis by PrimeInvestor Financial Research Pvt Ltd. Information herein is believed to be reliable but PrimeInvestor Financial Research Pvt Ltd does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. The services rendered by PrimeInvestor Financial Research Pvt Ltd are on a best-effort basis. PrimeInvestor Financial Research Pvt Ltd does not assure or guarantee the user any minimum or fixed returns. PrimeInvestor Financial Research Pvt Ltd or any of its officers, directors, partners, employees, agents, subsidiaries, affiliates or business associates will not liable for any losses, cost of damage incurred consequent upon relying on investment information, research opinions or advice or any other material/information whatsoever on the web site, reports, mails or notifications issued by PrimeInvestor Financial Research Pvt Ltd or any other agency appointed/authorised by PrimeInvestor Financial Research Pvt Ltd. Use of the above-said information is at the user’s own risk. The user must make his own investment decisions based on his specific investment objective and financial position and using such independent advisors as he believes necessary. All intellectual property rights emerging from this website, blog, and investment solutions are and shall remain with PrimeInvestor Financial Research Pvt Ltd. All material made available is meant for the user’s personal use and such user shall not resell, copy, or redistribute the newsletter or any part of it, or use it for any commercial purpose. PrimeInvestor Financial Research Pvt Ltd, or any of its officers, directors, employees, or subsidiaries have not received any compensation/ benefits whether monetary or in kind, from the AMC, company, government, bank or any other product manufacturer or third party, whose products are the subject of its research or investment information. The performance data quoted represents past performance and does not guarantee future results. Investing in financial products involves risk. Investments are subject to market risk. Please read all related documents carefully. As a condition to accessing the content and website of PrimeInvestor Financial Research Pvt Ltd, you agree to our Terms and Conditions of Use, available here. This service is not directed for access or use by anyone in a country, especially the USA, Canada or the European Union countries, where such use or access is unlawful or which may subject PrimeInvestor Financial Research Pvt Ltd or its affiliates to any registration or licensing requirement.

Aditya Birla Mutual FundAxis Mutual Fund Baroda Mutual FundBNP Paribas Mutual FundBOI AXA Mutual FundsCanara Robeco Mutual FundDSP Mutual Fund Edelweiss Mutual FundEssel Mutual FundFranklin Templeton Mutual FundHDFC Mutual FundHSBC Mutual FundICICI Mutual FundIDBI Mutual FundIDFC Mutual FundIIFL Mutual FundIndiabulls Mutual FundInvesco Mutual FundITI Mutual FundKotak Mahindra Mutual FundL&T Mutual FundLIC Mutual FundMahindra Mutual FundMirae Asset Mutual FundMotilal Oswal Mutual FundNippon India Mutual FundPGIM Mutual FundPPFAS Mutual FundPrincipal Mutual FundQuant Mutual FundQuantum Mutual FundSahara Mutual FundSBI Mutual FundShriram Mutual FundSundaram Mutual FundTata Mutual FundsTaurus Mutual FundsUnion Mutual FundsUTI Mutual FundsYes Mutual Funds

Equity: Large Cap Funds | Mip Cap Funds | Large And Mid Cap Funds | Small Cap Mutual Funds | Contra Mutual Funds | Dividend Yield | Focused Mutual Funds | Find Top Index Funds | Best Sector Funds | Thematic Mutual Fund | Best Value Mutual Funds | Equity Linked Savings Scheme | Tax Saving Funds
Debt: Banking And PSU Funds | Corporate Bond Funds | Credit Risk Funds Mutual Funds | Dynamic Bond Funds | Floating Rate Funds | Gilt Mutual Funds India | Find Top Liquid Funds In India | Long term debt funds | Low Duration Funds Debt Funds | Medium Duration Debt Funds | Medium To Long Duration Funds | Money Market Debt Funds | Overnight Debt Funds | Short Duration Debt Funds | Ultra Short Term Debt Fund
Hybrid: Aggressive Hybrid Funds | Arbitrage Mutual Funds | Balanced Advantage Mutual Funds | Conservative Hybrid Funds | Dynamic Asset Allocation | Equity Saving Funds | Multi Asset Funds | Multi Asset Allocation

Mutual fund rolling returns by category: Balanced Advantage | Conservative Hybrid Fund | Corporate Bond | Dividend Yield | Dynamic Bond | Equity Linked Savings Scheme | Floating Rate | Index Funds | Large and Midcap fund | Large Cap Fund | Liquid funds | Low Duration | Mid Cap Fund | Multi Cap Fund | Short Duration | Small cap Fund | Solution Oriented – Childrens Fund | Ultra Short Duration

Login to your account