This is Part 9 of a continuing 12-part series on financial planning. After having learned about some of the ways to save for our children’s education last issue, this issue we are going to learn how we may want to educate our kids pertaining to money.
In Adam and Aida’s case, they have put Alisa in the care of her grandparents while they are at work. So, when it comes to financial education, both the parents and grandparents have to make concerted efforts and be consistent in educating their children and grandchildren alike.
There’s an old proverb that goes, “Train up a child in the way he should go, even when he is old he will not depart from it”. Let’s take a look at some age-specific guidelines that we may employ when teaching children about the value of money.
It is certainly not too early to start them young. By the time children are old enough to understand what money is and to receive and spend it, they are ready for a pre-budget. This pre-budget should be simple enough to encourage children to divide their money into different categories.
Parents can begin by setting up three piggy banks: one for Giving (charity), one for Savings, and one for Spending. They then can divide the children’s allowance and gifts (like their ‘duit raya’ or ‘angpows’) into three equal parts and have the children place equal amounts in each piggy bank.
Money placed in the ‘Charity Bank’ is to be used to help others in need. For example, earthquake victims or a child with a hole-in-the-heart may appeal for funds through newspaper article. This will teach the child not only about the value of money but also caring for others.
Money placed in the ‘Spending Bank’ is to be used to buy the things the children want and which parents should not buy for them. These would include small toys, sweets, chocolates and so on. However, they need to understand that once those funds are gone they are not permitted to take from the giving or savings banks to buy items they want.
Money placed in the ‘Savings Bank’ is for the purpose of attaining a certain short-term goal. Examples would be saving to buy that remote-controlled car or that little doll or to buy a special gift for daddy and mommy’s birthday.
By the time children reach the age of seven they should be ready to move into a mini-budget. With this mini-budget, expenditures and income should be recorded in a small notebook. Here, we’d separate the ‘Savings Bank’ into short-term and long-term savings and to teach our children to record their expenses.
Short-term savings should be for something for which they need to save for less than a year while long-term savings is for something they will have to save for longer than a year. As an encouragement, parents may offer to top up the difference or make a ‘matching contribution’ into their ‘Long-term Savings Bank’.
The goal with this mini-budget is to get children into the habit of keeping tabs on their finances and saving for both short-term and long-term goals.
These are critical years – the transition into adulthood. By this time the basics of personal finances and budgeting should be understood by children and are being applied.
Basically in this phase, we want to empower our teenage kids with greater financial decision-making responsibilities. Let them decide on what they want to spend on and allow them to face the consequences. After all, they should be allowed to make some mistakes and it’s better for them to make little mistakes now than bigger ones later in life.
In addition, parents should also start teaching their kids about the concept of ‘work-for-allowance’. Parents can start getting their children to work within the home during their school-break and pay them a reasonable wage. They will then realise the true value of money and would exercise greater control over their expenses.
As parents, we have to be very careful of the seeds we sow and how we go about nurturing them. Money may not grow on trees but certainly our efforts will bear much fruit in our children.