As parents, one of our fundamental responsibilities is to impart essential life skills to our children – such as the ability to handle money. And there’s really no better time to get started on this than after a major ang bao haul over the Lunar New Year. Giving them a good foundation to financial literacy goes a long way towards helping your children become more savvy in making money decisions as grown-ups. So instead of depositing all the ang bao money right into your children’s bank accounts, take some time to do the following first.
1. Go over the basics
Even young children from two to three yeras old can begin grasping the concept of money, that it is soemthing you use to pay for stuff at the store. Using the cash notes, introduce buying and selling with pretend play. This way, your child can pick up the basic priniciples of commerce in a fun way. If they are four or five, you can even bring in terms like earning, spending and saving. Preschoolers will also enjoy counting the cash and totalling the amount. From there, you can decide how much goes into the bank and how much they can spend on a treat.
2. Explain saving in greater detail
Kids in primary school will have a good apprciation of saving since most of them receive a daily allowance to buy food. This gives them some autonomy and “spending power”, and they can understand the trade-off when they choose to purchase one thing over another.
If you are opening a bank account for them, tell them about interest rates, and how the bank rewards you for saving your money. Through this, you can encourage them to make regular deposits and put aside a proportion of their allowance for savings.
While at it, you can bring in concepts like emergency or rainy-day funds and goal-setting. Help him or her identify short-term and long-term goals for their savings – it could be a coveted toy, a special outing or something else that would motivate your child to practise prudence.
Also, if you really want to demonstrate the impact of compound interest, you can even use the ang bao money to top up your child’s CPF account – but this sum will be locked until his or her retirement.
3. Start them on budgeting
Perhaps you personally adopt the 50-30-20 rule – that is you spend 50 per cent on necessities and 30 per cent on wants and save the remaining 20 per cent of your salary. This might work for the kids’ daily allowance, but however, it comes to ang bao money, you might not want them to spend 80 per cent of it.
Start by coming up with a save-to-spend ratio you are both comfortable with. The idea is to get your child familiar with the idea of budgeting so he or she can practise saving for future spending, and differentiate between needs and wants.
Budgeting also involves categorising spending, allocating ang bao spending money for different categories like yummy treats, entertainment and even charity. Ask questions like, “Is this toy worth spending your entire toy budget on?” or “Do you really want to spend $20 on chocolate or consider buying the $10 one?” This will encourage critical thinking and wiser decision-making. The toughest part for you is allowing them to make their own choices and learning from the outcomes of their decisions.
This is great for older children in their tweens and teens. If your children are already brand-conscious, let them know about stock options of the brands they admire, even if you might not want them to plunge head-first into a volatile investing environent. Safer long-term options include putting some of their ang bao money into an exchange traded fund (ETF) or a fixed deposit account.
If your child is too young to understand investing, consider offering them incentives like a savings-matching plan to get used to the idea of snowballing their savings. For example, you could offer to match every dollar they save with 50 cents – these are tangible rewards that can spur them on. For more impact, use a clear piggy bank and drop a 50-cent coin in each time they insert a golden dollar coin.