Kids Finance

5 things we can teach our kids about finance

Financial illiteracy is a major global challenge. When the coronavirus pandemic struck in early 2020, the first problem that surfaced was the financial issue. Do we want this issue continues every time when we have global crisis? No! Then we need to educate ourselves and kids about finance.

Think about this – if you have a time machine that can bring you back to 10 years ago, what would you do differently? Many said that they wish they have saved and invested more. We want our kids to know saving and investing earlier for sure. Let’s see what the 5 things are we can teach our kids about finance.

The purpose of money

We need to teach kids that money is a tool to help us do what we want. When we have enough money, we feel financially secure. With money, we have more choices in life. We need money for almost all aspects of life, i.e. house, car, food, clothes, etc. We should not worship money. We should not ignore the importance of money too. If we ignore the importance of money, our kids will feel that. They might ignore money matters in the future. This might lead them to not being able to properly manage their money.

How can we earn money?

Parents are working hard to bring back money so that there is food on the table. However, kids might not understand why parents need to work and have lesser time to spend with them. The kids needs to be educated on how money can be earned through exchanging time for money, business and through investment. This will help them appreciate your hard work.

Needs and wants

When parents are busy working and have lesser time with kids, it is easy for parents to feel guilty and tend to buy what the kids demand. The kids need to be educated about the needs and wants and this will give them an idea how to spend wisely. The spending on the wants can be reduced which will develop their habits to think before spending. This will reduce the debt crisis when they grow up. Many youngsters are stuck in debt because they spend too much on luxury items.

4 basic money jars

Basically, there are 4 basic money jars. Spend, share, save and invest. The 4 basic jars can give the kids a rough idea how they should allocate their monies when they are given some allowances. They need to understand that they cannot spend all their monies and it is important for them to share some monies to people who are unfortunate. We need to let the kids know the importance of saving and investing for the future. We have only limited time to work if we want to retire at the age of 55. If we don’t save money, we need to work forever. We also need to let the kids know that the value of money will shrink every year due to inflation. With the low saving interest rate, we will be losing a lot of money value without investing.

Spending and investing

Kids should be taught about the concept of delayed gratification. We need to tell the kids that if we spend too much to get instant enjoyment, we need to work harder and harder for the future. They need to understand the concept to invest for a longer duration to see the delayed benefits. Even though they cannot enjoy now, their life will be easier at the later stage. Researches show that people admit the reason why they cannot save is because they spent a lot on lifestyle including shopping and entertainment. If the kids can appreciate the concept of delayed gratification, they are more likely to resist the temptation for excess shopping and be able to save more to secure better financial future.

Let’s use the 5 financial concepts above to teach our kids to create a better generation in the future! Read the full blog here and watch the Youtube video here on this topic.

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3 things relating to finance that you can do with your family to enhance relationship

The above news raised concern for Malaysian families. Kids become the victim if families are broken. It is hence important for families to find ways resolving financial issues so that families are being protected.

The followings show 3 things you can do with your families to increase family relationship and enhance the family finance.

Have your spouse to discuss the family financial goals with you. Make sure his / her financial goals are aligned with what you want for the family. Financial goals include retirement goal, children education fund goal and lifestyle goal. How much money you both anticipate for each of the goal and by when you need to achieve the goals? Having these to be discussed will reduce misunderstanding and arguments at the later stage.

Following the goals setting, both of you should start discussing about the budgeting plan and the saving plan. Who should save for what? How much to save per month to achieve the goal? How much to spend to enable the saving required.

Family financial planning doesn’t just end with goal setting and budget setting. It is suggested that the spouse can sit together to discuss the actual implementation and the plan. Monitor and discuss about the progress. Better communication about finances can help to deepen the couple’s relationship which in turn strengthen the family tie.

Involve the kids on simple finance matters. The parents should start having money talks with the kids since young. Many Malaysian families tend to avoid the kids from financial issues thinking that it is good for the kids. However, kids should know the family financial situation so that they don’t bother the family with more financial commitments, or if possible can contribute financially. They should be educated on the basic things such as the costs of the toys, activities, classes they were enrolled into. Let them understand the impact of the cost and have the choice to make decision to select what is best for them. This will also help raise the financial literacy of the kids and they can better manage their money in the future.

Have the whole family to plan for family activities with a budget in mind. It can be a family vacation with a bigger budget or just an evening activity with a small budget say RM 150. Let the kids or spouse to discuss what to do with the small budget. It can be a meal or a movie.

Having the whole family to plan for the vacation including discussing and determining the hotel, places to visit will enhance the relationship and it gives more chances to the family to have conversation. Less arguments will occur pertaining to the selection of hotel and trip packages. Sometimes, when there is a budget set, some elements within the vacation package need to be compromised. Having the family to discuss together can help the family to identify the priorities and spend more effectively. If we want to be happy, having a loving family is important. We do not hope that the financial issues will affect a loving family relationship. Let’s implement the above 3 suggestions for better family relationship.

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Your kids have received some Ang Pao monies! So what’s next?

Every year, your kids will surely receive some monies. The monies received can be as high as 4 figures every year! What to do with them? You shall put these monies to work in long term. See the table below:-

If your kid is receiving RM1,200 Ang Pao every year, after 15 years, your kid will get RM 18,000 in the saving account at almost 0% interest. Meanwhile, if you choose to help your kid to invest and put into an investment account which grows at 8% annually, the money would have almost double to RM 32,000+. If the rate of return is 12%, the RM 1,200 yearly Ang Pao would turn to RM 44,000+ in 15 years. That is the power of compounding interest and the habit of regular saving.

If the money is untouched for long time, choose a saving place that can help you kids to grow their Ang Pao monies. It can be part of their education fund in the future too! These are some of my kids’ investment accounts and I started with only RM 5,000 each and slowly, it turned out to slowly grow into 5 figures account.

Where you choose to save your money is crucial. Every little effort counts! Let’s help your kids to grow their monies too! Contact me if you wish to help your kids to set up this little investment account!

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3 important financial concepts that you should teach your kids

Kids can absorb knowledge faster when they are young. Hence, it is important to instill good money management concepts in them when the kids are still small. Here are 3 things you can teach your kids:-

Ways to earn money: teach your kids about active and passive income. You can start to pay them small allowance if they offer to do some house chores. This can let them understand the concept of active income and it takes effort to make money. You shall also be educating them that the money can be used to make money (generate interest) even without much effort. Help them to save their money and show them the interest even they are not doing anything. Let them understand the concept of passive income.

Delayed gratification: Place a small amount of your kid’s favourite food in front of them; offer them more food if they can choose to delay eating them by 30 mins. This is to let the kids understand the concept of delayed gratification. Sometimes, good things do not come immediately, they need to wait and delay the instant enjoyment to enjoy more in the future.

Money is just a tool: Explain to your kids that money is not the utmost important thing in life. It is just a tool we use to achieve what we want in life. Explain also money cannot buy time.

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