Fiscal fitness in distress situation

Job losses and drastic cut in income bringing distress to a common household
"Globally speaking, the economy in our neighbourhood and also in far and wide geographies is in tight grip of severe inflation and geopolitical tensions." [Representational Image]
"Globally speaking, the economy in our neighbourhood and also in far and wide geographies is in tight grip of severe inflation and geopolitical tensions." [Representational Image] Advantus Media Inc. and campdenfb [Creative Commons]

All of us are well aware that the present time is in no way advantageous as the economics has lost its dynamism and continues to remain subdued owing to two major catastrophes - ongoing pandemic for the last two years, and the outbreak of armed conflict between Russia and Ukraine.

Both these calamities unleashed large-scale rejigging of almost all economic sectors and during the process millions of households were hit with acute financial strain. Job losses and drastic cut in incomes were rampant and dominated the distress in common households.

Globally speaking, the economy in our neighbourhood and also in far and wide geographies is in tight grip of severe inflation and geopolitical tensions.

In clear terms, inflation is dancing merrily around the world, hitting advanced as well as emerging economies without any discrimination and has already started behaving as a termite on the economy.

Experts are already talking about the possibility of a global economic recession by the end of this year. Amid this economically deteriorating situation, the financial health of households not only holds sway for its members, but it has direct bearing on the economic recovery process.

A dip in households’ savings impairs their spending capability, thereby causing a dent in their future consumption.

Precisely, in the given situation uncontrolled inflation and the growing geopolitical tensions have pushed the prices of essential as well as non-essential commodities to such an extent that the government seems helpless to reverse the trend. In fact, the uncontrolled price rise has caused severe pain to the household budgets and as per continuous flow of media reports quoting reliable experts, millions of households have slipped into poverty.

However, at the same time, this unprecedented crisis has placed some important financial lessons, which can help us to safely navigate any future crisis. In other words, the situation has, among other things, prioritized money management skills as an arsenal to stay afloat in difficult times.

So, there is no better time than today to take a pledge to arm our children with money management skills and guide them to script their future financially sound.

At the end it’s the sound financial health which will keep you afloat even in dire circumstances. The present situation vets this fact. In line with the given situation, this is the best time to put parenting skills to test and chisel them for observing extraordinary responsibilities to make the present time memorable.

In other words, looking at responsible parenting through the prism of economic and financial angle makes sense today as we are experiencing the never-seen-before worst economic upheavals for the past two years around us.

What should you do to make the future of your child financially secure in the given situation?

Securing the future of a child has always remained the topmost priority of parents.

But the present situation gripped by never-seen-before uncontrolled price rise, that too at a time when the ongoing pandemic left millions of households facing drastic drop in their source of income, is a huge concern for parents to fund their child’s essential needs for a bright future.

So at a time when money is fast losing value and prices of essential and non-essentials are shooting up to unprecedented levels, you need to start saving right now to fund future needs of your child.

Remember, in present times saving alone is not enough. Investing the saved amount in various portfolios like shares, gold, bonds etc will give you a good amount in the future.

For example, you save Rs. 5000 every month after making expenses towards your needs. If you keep this saved amount idle, over a period of time (say one year) you would find that the saved amount would not be enough to buy you enough things as it would have facilitated you a year ago.

This means money loses value over a period of time, while prices of goods and services soar much faster than the value of money. This kind of mismatch necessitates that you let your money talk and multiply preferably at a pace much faster than inflation.

So, if you want a handsome amount in hand to find the future expenses of your child for a bright future, then investing your saved money into profitable investment instruments is inevitable.

Precisely, it’s an investment which can lend you the help to create financial security for future needs of your child, be it academic or any other essential need. In other words, you need to know how to make your money work for you. Park your money in any financial market - a place where you can explore opportunities not only to see appreciation of your savings, but also to protect it.

Even as financial risks are inherently associated with the market, there are guiding principles to help you as an investor to navigate safely even in troubled times.

What are platforms which parents can safely bank upon for saving and investing?

In the banking sector we have a lot of saving schemes which not only guarantee assured earning on your money deposited but also ensure safety. Here you can deposit a fixed sum for a fixed period of time suiting your own time limit.

During the period you will earn interest on the deposit at a fixed interest rate. You also have an option to take the route of a scheme where you can deposit a fixed amount monthly for a fixed time. Then we have a capital market where you can invest your money in equities and bonds.

While entering into the capital market, work out three basic things: safety of the money invested, to get the money back as and when required (liquidity) and highest return on their investment. In this market, returns on investment are high, but so are the risks associated with your investment. However, you can mitigate these risks by investing in a variety of stocks.

This means, distribute your money among a variety of stocks/ shares that may rise and fall at different times. This way you will insulate yourself against those big “hits” that your entire investment portfolio could suffer when one class of stock is hit hard.

So, always check your risk tolerance limit before making your money talk, be it depositing money in any bank scheme or making investment in share market.

When is the ideal time for parents to start saving money for children?

We know, a newborn is a bundle of joy for everybody, more so for his parents. But this bundle of joy means new responsibilities for the parents. So, it’s best to start getting a fix on the money needed right after the child is born.

The first step to start saving for a newborn should be to open a savings account, or a recurring account, to park savings and cash gifts. Several banks offer savings accounts exclusively for children.

Don’t ignore the fact that your kids and expenses grow together. When your kid is mature enough, link his pocket money to a savings bank account.

In other words, the ideal time to start planning is when your child is born. School fees may not be a big burden, but it’s for your child’s college, higher studies and marriage that you would probably need to save for in advance.

And the sooner you start, the better it is. The reality is that when you start planning for your child early, you have time on your side—ideally, around 18 years before your child is ready to go off to college.

Disclaimer: The views and opinions expressed in this article are the personal opinions of the author.

The facts, analysis, assumptions and perspective appearing in the article do not reflect the views of GK.

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