Starting Kids on Managing Money
Starting kids on managing money Teach your kids good money management. -->
By Lorna Tan, Finance Correspondent
My son was nine when he popped this question: 'Who gets the house when you and Dad pass away, Mum?'
Startled, I retorted: 'I'm giving it to the church.'
In case my parish priest is reading this, I'm sorry, I lied. I wanted to avoid giving the boy the impression that he could depend on his parents financially for life. Better for him to stand on his own two feet and be responsible for himself when he grows up than to depend on handouts.
But what am I doing to ensure this?
The recent media reports highlighting the undesirable trend of younger Singaporeans facing credit woes were a wake-up call for me. It appears that most of these young adults are snared by materialism and a desire for the high life. With easy access to credit, they splash money on cars, branded goods, clubbing, gadgets and overseas holidays.
As a parent, I would be devastated if my kids became bankrupts through bad money management. In fact, it will be an irony because a large part of my job is to advocate in my articles the importance of financial literacy.
Like all parents, I want my children to be useful and upright people leading fulfilling lives. However, it is becoming evident that having reasonable levels of IQ (intelligence quotient) and EQ (emotional quotient) is no longer adequate to get through life successfully. We've neglected the importance of FQ (financial quotient).
Finally, Singaporeans are slowly waking up to the reality that it is not enough to 'study hard and earn money' but also how to save and invest it. This was why I decided to register my kids for a two-day financial literacy programme during the June school holidays. It was called the MoneyTree programme, conducted by home-grown firm Young Entrepreneurs' Secrets. It costs $680 to $880 per person, depending on the level.
My 15-year-old daughter was receptive to attending the programme but I had difficulty convincing my 14-year-old son to do so because he did not see the necessity for it. Neither did he want to give up two days of his precious vacation time. Frustrated, I ended up giving them $50 each as an incentive.
I sat through half of the first day's session and was impressed with what the children were put through.
In an informal classroom environment, some 14 children were taken through a series of key topics, including how the forces of demand and supply determine prices of goods, the types of income and their sources, managing money and prioritising expenditure.
To simulate the real-world environment, the children were provided 'play' currency and 'credit cards', which gave them a feel of the financial pitfalls that exist in the real world.
I found myself gritting my teeth when my son was the first among the participants to use his 'credit card' to pay for a transaction, without considering the interest-rate charges that would snowball. I was tempted to intervene but I quietly consoled myself that it was better for him to make mistakes now than learning them the costly way later in his adult life.
The youngsters were taught the importance of budgeting and 'paying yourself first' so as to prevent overspending. Another key lesson was to differentiate between needs and wants. 'It's not how much you make, it's how much you keep' was something that the trainers emphasised throughout the programme.
Useful takeaways from the programme include the importance of saving early to take advantage of the benefits of 'compound interest' and the 'Rule of 72'. The former refers to interest paid on both the principal and accumulated interest over time, while the latter shows how long it takes to double your money by dividing 72 with the expected interest rate.
For instance, if you invest $10,000 in an instrument that gives you an annual return of 6 per cent, that sum will double to $20,000 after 12 years.
In the same vein, the price of a burger will double to $8, 12 years from now, assuming it is currently sold at $4 and the annual inflation rate is 6 per cent.
On the second day, the children learnt more about bank savings and making their money work harder by having multiple income sources and investing in stocks and unit trusts, and the differences in risk and reward between saving and investing.
I hope the lessons my two kids gleaned from the two-day workshop will go a long way, but I'm aware that I, too, have a role to play in instilling good money habits in them. One method recommended by experts is to encourage the saving habit by matching the kids' savings. I should also hold back from giving in too easily to their demands when they badger me for gadgets and consumables like mobile phones.
Recently, I started involving them in my financial planning by giving them an idea of the various instruments I use to make my money work harder for me. By doing so, I hope they will understand the need to plan for their financial future early by inculcating good money-management skills and discipline.
This article was first published in The Straits Times on August 17, 2008.
