In the past, the focus was on education. Many of our grandparents and parents worked hard to provide their children with a good education.
Education was the ticket to wealth.
Their dream was that, armed with the right professional qualifications, their children would get good jobs with the government or in large companies, or enter into lucrative professions such as the law, medicine and accounting.
For a while, this held true – but it is no longer entirely the case.
The skill of managing money
Today, the most important skill a parent can teach their child, regardless of the qualifications they end up acquiring, is managing money.
This means more than just reminding the children to switch off the lights because electricity costs money, or “Mummy and Daddy cannot buy that for you, it’s too expensive”.
Teaching your children to be financially savvy means that parents should schedule time to really talk to them about money, help them to understand what it is and the role it plays in life, as well as how to conserve it, spend it prudently, invest it and make it work for them.
1. Talk to your children about the importance of money
Start with a talk with your children to gauge their interest and level of understanding.
Obviously, an older child will understand more but even a young child can be guided to develop an interest in money matters. Tell them money management is going to be the latest family project.
2. Give your children an allowance
Get them a savings box or piggy bank (or better still, recycle a tin or jar for this purpose).
Teach them that they are earning the allowance in return for specific chores that they are doing for mummy and daddy, or for achieving good results in school.
If possible, avoid rewarding them financially for doing day-to-day chores, as such behaviour tends to give children the impression that they need not do housework if they are not paid for it.
Help them instead to get used to the idea of getting paid for work done.
3. Let them manage their allowance
Suggest that one portion of their allowance is put aside for savings, while a portion of the remainder should be retained for investment, another portion for charitable giving and the rest is theirs to spend or to save up to buy something they want.
4. Explain to them how a savings account works
Take the child along to open a savings account at the bank and involve them in the process. Give them a simple explanation of the concept of interest.
This is sure to lead to an interesting discussion as the child asks questions and you explain further.
Involve the child in reviewing the monthly or quarterly bank statements or set up online access to the account through which you can help your child monitor the account. (To be safe, do not give the child control through the online access password.)
Help the child to note down opening and closing balances in a notebook to inculcate the habit of keeping records and tracking the in- and outflow of money.
5. Involve them in the family’s finances
As parents, everyone has their fair share of weaknesses and faults. For some, it is managing money. Our own finances may not be in good shape but think about it.
When the bills come in every month, do we groan loudly in front of the children? Do we complain about not having enough money and blame others for it – our spouse, the boss or the government?
Children learn by observation and parents could unwittingly be passing their negative financial behaviours to their children.
To manage this and work towards a more positive attitude to money, try rephrasing or concluding your earlier comments with a positive comment, such as, “Let’s sit down together and talk about this. How we can we cut expenditure and increase savings and investment?”
Encourage your children to come up with ideas while maintaining a positive, can do attitude.
This will help them to feel involved in the family finances and understand that they have a say in the decision-making process.
It will familiarise them problem-solving and using creative solutions to make ends meet and work toward financial goals.
Ultimately, teaching children to manage money could be more valuable to them than leaving a large inheritance.
It is hoped that these tips can help parents introduce their children to the concept of money management and pique their interest early, paving the way for a valuable education in financial matters that will stand them in good stead throughout their life.
This article first appeared in kclau.com
KC Lau’s first book Top Money Tips for Malaysians has sold thousands of copies. He launched the first online personal finance course specifically designed for Malaysians, entitled the Money Automation System. He also co-founded many other online financial courses including the Bursa Method, Property Method, Founder Method and REIT Method.