Teach your child the importance of managing their own money with these 3 useful expert tips:
1. Set an allowance that covers just the necessities
Many people tend to think throwing money at a problem is the best way to solve it. But the same idea doesn’t apply if you want your kids to grow up with a keen head for saving, budgeting and even investing.
If your kids are given ample pocket money and every iPhone, PlayStation and kickscooter their hearts desire, they may grow into the sort of person who craves designer bags and fast cars, and is fine with spending all their money to get them. They’ll only see what money can buy, but not how hard it is to earn it.
Still, your child does need some money to buy food in the canteen and for older kids who are no longer ferried around by school bus or the mom-mobile, transportation money.
Give your kid enough to keep him/her from dumpster diving in the school bins, but not so much that they’re hanging out at Starbucks every day. If there’s something they want to buy, they’ll have to go without that extra curry puff and save up pocket money to buy it.
This will only teach your kid how much effort and time is required to save up money, forcing them to evaluate whether they really really really wants that kendama. It also teaches that if they want something, they’ve got to save for it, instead of having their desires instantly gratified. (That’s something a lot of Singaporean adults need to learn, too.)
2. Involve your child in the buying process
While it is generally a good idea to let your kid save up for what he/she wants once they get to the age when they’re old enough to do so, you’ll probably find yourself buying toys or gifts for them, especially when they’re younger.
But for every Bratz Doll, My Little Pony or Angry Birds plush toy you buy for them, you have an opportunity to unleash upon your child a lesson on budgeting.
Instead of simply shelling out the money for the toy, take your kid to Toys R Us, Kiddy Palace or wherever else, and provide a budget of, say, $50. Then let your kid decide (with your help) what to buy within that budget. He/she might choose to blow the entire $50 on a Nintendo 3DS game, use it to buy three Zootopia figurines, or save it so he can eventually buy a PlayStation 4.
Remember when you were a kid and had no idea how much $10 was really worth in the grand scheme of things? Or found yourself wondering why your parents couldn’t just spend that $10,000 to buy you a pony?
When your child gets an idea of how much toys cost, he or she will become a lot more cost conscious, and also a lot more easy to reason with when you refuse a request because something’s just too expensive… such as when he realises an iPad costs the equivalent of 50 Hot Wheels cars.
3. Start a small investment and track its growth
Instead of sticking all your kid’s ang bao or gift money in a savings account and letting it get eroded to obscurity by the ravages of inflation, use some of this money as spare change to teach your kids investing.
Now, unless you’ve got the type of relatives who dole out three figure ang baos, your kid probably isn’t swimming in tons of cash. But that doesn’t mean you can’t teach him/her the value of compound interest with a simple low-risk investment.
You only need $500 to purchase Singapore Savings Bonds, which a year or two of ang bao money should cover. Get your kid involved and track the progress of the investment every year, explaining to him/her the concept of compound interest so they can see how the longer they keep the money there, the more it will grow.
Most kids have no idea there’s even a way to make money grow, so this discovery in itself can be quite an eye-opener. If you manage to get your kids excited about investing at an early age, you’re putting them way, way ahead not only of their peers but also many adults, since they’ve got the benefit of time to let that money grow.
And if there’s something every Singaporean parent likes, it’s to give their kids a head start.
This story appeared first on the MoneySmart blog.
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