May 24, 2009
Make them money smart
Experts say kids should learn financial management from a young age so they can take the habits into adulthood
By Lorna Tan
You may have started saving late, but you can certainly teach your children the importance of putting a bit of money aside while they are still at a tender age.
With the school holidays just round the corner, now is an opportune time to help them pick up some money management habits - and possibly save you from potential headaches when they reach their adult years.
It is never too early to start either. Mr Brian Goh, senior vice-president and adviser with ipac financial planning Singapore, used to ask his young daughter Jill, now 12, to help pay bills.
When he bought a newspaper, he would give her the cash to pay.
'By actually carrying out the payment, she gets a feel for paying bills. She also learns that different items cost differently,' he said.
Mr Goh also asked her to keep all the receipts of his cab rides and to tabulate the charges so she could see how much they amounted to. It all helped her understand the family expenditure.
As Jill gets older, Mr Goh's money lessons become more sophisticated. He now offers her 3 per cent interest - above bank rates - if she leaves her savings with him.
'I offer a higher interest on my daughter's savings to encourage her to save more and use the opportunity to teach her the concept of interest rates. This helps with her mathematics too,' he said.
Another effective way to teach older children how to budget is to give them a weekly or monthly allowance instead of a daily amount.
This is recommended by Mr Ben Fok, chief executive of Grandtag Financial Consultancy, who tested the method on his two kids, 16-year-old daughter Jeryn and 14-year-old son Samuel.
'When Jeryn and Samuel were in lower primary school, my wife Sharon and I started giving them a daily allowance,' he said.
'When they moved up to Primary 4, it was changed to a weekly allowance payable every Monday. Once they were in secondary school, it was converted to a monthly allowance paid fortnightly.'
His rationale is that having a regular allowance which works like an income is the only way children can learn to manage money.
'Knowing the limit of available funds forces a child to think about how much things cost and make spending choices between many things that they may need or want,' said Mr Fok.
'They have more appreciation for the things they buy when they use their own savings.
'The ultimate goal of giving an allowance to them is to help them to distinguish between needs and wants, and to prioritise and to save - a difficult lesson that will be needed throughout life.'
Now that his children are in their teens, he has started teaching them how to grow their savings.
One step was to buy them shares to show that the higher the potential reward, the higher the risk.
'I bought some penny stocks, as low as four cents per share, so 1,000 shares would only cost $40. I told them that if the investment turns out right, they would profit from it. The reverse is, if it turns out wrong, they would lose their capital,' he said.
The needy are not forgotten either, with Mr Fok instilling the meaning of tithing during their weekly church services.
'It is their free choice to put whatever amount they wish into the offering bag and also to participate in whatever projects in the church. They also know what it is to be a blessing to others as they are blessed,' he said.
Ask author and businesswoman Norma Sit what money management skills she would like to impart to her children and she cites being 'entrepreneurial with money'.
She has two children, Brian, 20, and Elizabeth, 13.
She recalled an incident where Elizabeth once made bookmarks together with their maid to sell to neighbours. Unfortunately some neighbours decided that it was wrong and admonished her.
Ms Sit would also like her children to work for their wants, taking on jobs if required. She finds this a 'good discipline'.
'I made my son work at McDonald's at $3.50 an hour during the school holidays, as it is crucial that he understands how difficult it is to earn the $3.50,' she said.
As children learn from observation, Ms Sit is constantly reminded that as a parent, she is her children's role model even in financial matters.
'So be the person you want them to be. This is the hardest. On a day-to-day basis, talk about money. Some families don't. It is important to be comfortable talking about money,' she said.
Ms Sit also believes in the power of mental models and is careful not to speak negatively of the rich to Brian and Elizabeth, in case they may grow up thinking that they should never aspire to be well off.
See the box for some activities recommended by ipac for different age groups.
Teaching children how to value money
§ Show children the value of money by explaining what $2 can and can't buy during a shopping trip.
§ Let them watch you pay for things or even get them to pay for some things at the counter. Do not give children notes. Pay their pocket money in coins as they need to understand how to allocate their money.
§ Show them how to visualise their goals. Get them to draw or write what they want to save for. Keep the goals realistic and short-term, otherwise they will lose interest very quickly.
§ Different things have different values.
§ Money simply doesn't grow on trees and that you have to work for your money.
§ You have to allocate your money for different things.
§ Encourage them to participate in a school banking programme, or simply start your own with one of the great kids savings programmes available. This will give them a sense of regular commitment to savings.
§ Get them interested in looking at their bank statements and following how much money they are saving. This will get them used to reading banking paperwork.
§ Get your kids to start thinking of a medium- or long-term saving goal and work out how long it will take them to reach it.
§ Give them a combination of notes and coins for their pocket money. This will really strengthen their allocation abilities and their efficient use of spare change.
§ Start showing them the family bills and explain positively that they have to be paid to keep the household going.
§ Saving is a planned activity and something that needs a bit of thought rather than just putting away what's left over.
§ The value of small change.
§ It takes a fair bit of money and good money management skills to keep a roof over their heads.
§ Encourage them to set up their own bank account and use Internet banking. Direct debit their pocket money into their account. This will get them used to dealing with intangible payments, and that electronic money is not just a set of numbers.
§ Make them responsible for their own bills such as mobile phones. It is a quick way to teach them how to spend wisely.
§ Try not to lend money to children for purchases that are of an extravagant nature. If they really want it, encourage them to get a part-time job. If you do loan money to them, do so only on the grounds that you will reduce their allowances until the loan is paid.
§ Introduce them to the concept of return on investment. Show them the value of putting some of their money into high interest savings accounts or even into managed investments.
§ Highlight the fact that if they start now, they will be so much better off down the track.
§ Not only will they learn more modern and more efficient banking techniques, they will also learn how to curb their wants, or find ways to earn, rather than going into debt for something that is not totally necessary.
§ It takes money to create money.