You can never start teaching your children about money too early. From a young age, they start observing the behaviours and attitudes of their parents. This makes it crucial for parents to be conscious of the values they are imparting to their children, especially when they make financial decisions and handle their money, including spending, saving and investing habits.
By making a conscious decision to impart good money habits to your children from an early age, you will be equipping them with financial nous and enabling them to practise using money to become responsible teenagers, youths and adults.
A good way to start would be to use everyday scenarios to build a sound financial grounding in your child. With Chinese New Year just around the corner, it is also a good time to inculcate good money habits in your children starting with all that Ang Bao money. Here are five ways how you can do it.
1. Be a good financial role model
Your child is always watching and learning from what you're doing. You have to ensure that you are making good decisions with your money to be a good role model they learn from. If you are the sort who buys new iPhones each year, often go out to fancy restaurants for dinners or book extravagant holidays that put a strain on your finances, then you can expect your child to form similar habits in the future.
You should evaluate your own financial decisions and lifestyle. Be sure that you have developed good money habits that your child can mimic. These may include a regular plan to save, setting aside money for rainy days, prioritising needs over wants and creating a budget to keep track of daily expenses.
2. Teach them the importance of delayed gratification
We live in an environment that subscribes to the "I want it now" mantra. Just by logging on to social media and interacting with friends, your children will see many of their peers showing off the coolest toys or latest IT gadgets that they do not have. This will naturally lead to them questioning why they do not have these things.
You should teach your child the importance of delayed gratification. This will demonstrate how they are able to afford a big-ticket purchase without having to rely on us. They can either choose to scrimp and save their allowance or "work" for it by performing chores in the household or for neighbours, friends and relatives.
It is important to ensure that the item your child is aiming to buy can be purchased after a few weeks of saving or working, rather than several months or even years, to drive the point home and let them taste success.
Doing this will hone an understanding that they cannot possibly afford everything they want because things cost money and money takes time to be saved. When they eventually start working, they will understand the importance of not blowing their whole pay packet before the month is up.
3. Explain the benefits of a long-term plan
Instead of only saving for a single purchase, sharing about having a long term plan allows your children to distinguish the different reasons for using money. There are typically three broad categories you can introduce to your children – money for spending; money for saving to buy something; and money that we put aside for our future.
We can sit down with our kids and discuss what they need to spend money on a daily basis for, including food and drinks in school, what they are saving for to buy in the future such as maybe a shoe or computer game they really like, and what their long-term goals are, do they want to continue going to school, or own a home when they are older. While the final aspect is slightly advanced, this will expose your child to possible goals they want to achieve in their long-term futures.
4. Let them make successful and disastrous financial decisions
Once in a while, your child will have impulses to buy something he or she really does not need or can barely afford. Rather than to forbid them from wasting money, we should first explain to them why we do not think it is a wise decision, but still allow them to make the final decision to make the purchase.
During this point, we should not bail them out of a tough situation that they can learn from. If they have to survive on slightly less pocket money for school or miss out on something else that they were initially saving for, it will hopefully teach them the value of sticking to their plans and to avoid making impulsive decisions.
This may come in handy when your child has access to larger savings and credit cards in the future. They will remember the repercussions of bad financial decisions they have made in the past.
5. Introduce the concept of investing
Parents can approach this in two ways. Firstly, when your child puts away money for the future, we can add a percentage to their savings, for example 50% or 100%, on the condition that they cannot take out this money. Sounds a little like the CPF. By letting them watch their money grow without working for it, they will be able to understand the concept of investing for the future.
The second way is reserved more for slightly older children. You can look at a shared hobby, such as a favourite mobile game, social media or sports company and follow the performance, revenue growth, customer base, business plans, its edge over competitors and other interesting aspects of the company that makes it a successful one.
What parents should focus on
Financial education is not a topic actively taught in schools. Yet, it's one of the most useful skills you can teach your children. By inculcating healthy financial habits from an early age, parents can build a solid foundation for their children's financial well-being and ensure they grow up to be responsible teenagers and adults. By starting early, your children would also be able to quickly grasp increasingly complex financial concepts that they will eventually have to confront as adults.
Start your child's savings journey today!