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Raising kids to be money smart

10 Feb 2019 
SOURCE: The Sunday Times © Singapore Press Holdings Limited. Reproduced with permission

By Lorna Tan


The start of Chinese new year is not only a good time to spring clean our investment portfolios but also a golden opportunity to educate the children on good money habits.

As Chinese New Year typically falls within the first two months of the year, it is a timely reminder to parents to have conversations on money matters with their children before other priorities get in the way, says Mr Deepak Khanna, head of wealth development at HSBC Bank (Singapore). "In addition, this is probably the rare occasion where children will be given extra money 'windfalls' which are not part of their usual routine.

"This makes Chinese New Year an ideal opportunity to impart money management skills."

Ms P'ing Lim, head of deposits and secured loans at DBS Bank, suggests parents have meaningful conversations with their children on having the right mindset for the handling of money, particularly hongbao, during this festive period.

"For example, they can encourage their children to set aside most of the money for long-term savings and for rainy days, while the rest can go into a pool to be used for a special occasion or goal, such as a birthday gift for their best friend or a personal treat," she says.

"Such conversations become the preamble towards more formal discussions on financial planning when the child grows older."

If the child doesn't already have a savings account, consider opening one so they can deposit red packet money.

Ms Lim notes that deposits are usually higher during the Chinese New Year season due to parents putting red packet money in for their children. "Give your child a head start towards money management by starting a POSBkids savings account so that they can start monitoring their own savings and interest earned," she says.

"During the festive season, we usually open 60 per cent more new POSBkids accounts compared with other months of the year."

Many parents also use the hongbao to start saving early for their child's education. Options include endowment insurance plans designed to provide savings and protection benefits for their child.

When it comes to saving versus spending red packet money, Ms Chung Shaw Bee, head of Singapore and regional deposits and wealth management, UOB, suggests following the 90-10 rule where 90 per cent is saved or invested and 10 per cent can be spent.

"If they received 10 red packets of $8 each, would they want to spend all the money on one toy or perhaps save some of it for another purchase in time?" she asks.

"Let them weigh their considerations and learn from the consequence of each decision they make."

Mr Kelvin Goh, OCBC's head of investments and wealth advisory, and a father of two girls ages six and three, believes every day is a good day to teach your children about money matters.

"In this age of online shopping and easy credit, I believe education and some good old-fashioned discipline are key tools in teaching our children these valuable life skills. As parents, it is our responsibility to model these behaviours for them to follow," he says.

Mr Goh has also introduced the concept of compound interest and delayed gratification by giving his children additional incentives if they hit their saving targets.

The Sunday Times highlights 10 tips for educating children on money matters.

1. Value of money

Mr Goh has started inculcating the discipline of saving in his two daughters.

"My elder daughter Isabelle has recently started school," he says.

"What I try to do is to give her some perspective over the value of money, and I do this by linking the concept of money to everyday things she can relate to.

"So, if she is able to save 20 cents a day, I tell her that allows her to purchase a small packet of biscuits. But if she were to accumulate 20 cents daily over a week, she now has the option to buy a whole box of biscuits or other items."

Mr Goh's wife Crystal has given Isabelle a container for her savings. This helps her visualise that she is gradually working towards a chosen target.

Mr Goh adds that children between four and six may find it difficult to distinguish between needs and wants, so he tries to educate his children on the difference between enjoying a packet of biscuits on a one-time basis versus say, enjoying a book for the longer term.

"We try to weave in lessons on compassion and giving as well, by telling them part of their money can be used to contribute towards church activities, or to buy tissues from the disabled auntie on the streets.

"I'm still struggling if I should implement the concept of taxation, with me as the parent acting as the taxman, though!"

2. Start early

It is never too early to start teaching children about money as it is vital to impart good management skills as young as possible. In fact, the concept of money management can be introduced once a child is able to count, says Mr Deepak.

"Parents can start with the concept of savings as a start, progressing to impart money management skills such as allocating their allowance to different spending when the child gets older," he advises.

"More importantly, this should always be an on-going conversation regardless of the child's age. Parents should consistently re-enforce the importance of not spending beyond your means."

3. Saving before spending

Once all the hongbao have been collected, get the children to take stock of how much they have accumulated. Then get them to put aside a significant part of this into a savings account before committing to any expenditure to instil the discipline of saving before spending, says Mr Goh.

Children should then be guided on how to spend the rest of their hongbao, he adds.

Mr Deepak suggests that parents take their children to the bank to deposit their "windfall".

"Explain to your kids that their money will grow when they leave it in the bank and show them the interest earned on the last deposited 'windfall' money.

"Make good use of this opportunity to educate them about the potential of postponing their immediate consumption to obtain a more desirable item. This will allow them to learn the concept of delayed gratification and patience."

4. Needs versus wants

One way to teach children the difference between "needs" and "wants" is perhaps to split the portion of hongbao available for spending into two pools. The needs pool should be significantly bigger than the wants pool, perhaps a 70-30 split.

Sit down with your children to explain the difference between needs and wants. Tell them to make a wish list and go through it with them to distinguish between items that are needs or wants.

Needs would be things they cannot do without while wants are items they can do without which make them happy.

So if your children are going to take up swimming lessons, then they need to buy swimming costumes if they don't already have one or their current ones do not fit. Children may also want to buy toys or an extra pair of shoes or slippers because they liked something they saw.

Go ahead and allow them to buy these things from the pool of funds set aside for their needs and wants once they have set aside enough to meet the cost of the purchases.

This simple activity gets your children to evaluate the importance of the items they plan to spend their money on and rethink how they can plan their finances wisely.

5. Lead by example

Mr Deepak notes that parents have great influence as their children tend to model themselves on how their parents behave.

For example, parents could demonstrate the "needs" versus "wants" lesson by letting their children see them saying "no" to something that they desire.

Similarly, parents should encourage their children to delay instant gratification by imparting the merits of comparing prices before making a purchase.

"Most importantly, parents should be mindful of encouraging the association of shopping trips as leisure activities for the family. This may unconsciously encourage their children to associate spending money as fun, and that money is unlimited," he says.

"Another way would be to leverage garage sales to demonstrate the concept of working in exchange for money.

"Children need to contribute and put in effort to sell some of their old toys or books or even help with making items such as cookies for sale. This will give them a better understanding of the correlation between effort and reward.

6. Leverage daily life and family holidays

Parent should explain different concepts of money with clear examples. Some of the money concepts include earning, saving, spending, borrowing, budgeting, investing and so on, says Mr Deepak.

"Teaching through real-life situations and examples will help children better understand these concepts - where money comes from, how it is earned and how it can be used," he adds.

"Trips to banks/ATMs or supermarkets are a good way to help children understand costs versus value; currencies and denominations; savings versus spending. Parents can also use overseas family holidays to explain the concept of foreign currencies and exchange."

7. Budgeting

UOB's Ms Chung suggests the use of labelled piggy banks to teach children about budgeting.

"One way is to split their pocket money in the following ways: 40 per cent goes towards everyday spending; 40 per cent towards a short-term savings goal such as buying a toy; and 20 per cent towards a long-term savings goal such as buying a bicycle," she suggests.

8. Make saving fun

Some children respond better to visual stimulus and one way to make saving fun and visual is to apportion hongbao that is available for spending into "savings jars", advises Mr Goh.

"The larger jars can be for wishes that require more savings (like a trip to Universal Studios), while the smaller jars can be for a specific toy. Encourage children to save any money collected throughout the year in the savings jars," he says.

"This activity is visually stimulating and will help your children to understand that some items take a longer time to save for."

9. Investing

Parents can consider investing on their children's behalf early on, says DBS' Ms Lim.

This can be a teaching tool for their children to learn concepts such as how the amount invested, the horizon and time value should reflect their financial goals.

In addition, highlight the importance of having a diversified portfolio as soon as one's child begins to learn about investing.

"Some investment options include the POSB Invest-Saver, where you can start investing into either Singapore Bonds or blue chip stocks via two exchange-traded funds listed on the Singapore Exchange from as low as $100 monthly," she adds.

"This allows investors to start an investment portfolio and begin investing regularly, with a modest amount of funds, instead of trying to speculate on the "right" time to enjoy potentially higher returns."

10. Child Development Account (CDA)

Parents are encouraged to make full use of the CDA, which is a special savings account for children up to age 12, where the Government matches deposits dollar for dollar up to $3,000 each, depending on the child's birth order.

You can open a CDA with the three local banks. No initial deposit is required and there are no fees for maintaining the account. The banks pay up to 2 per cent a year in interest on all balances with no deposit cap, so it makes sense to top up the accounts.

CDA funds can be used for educational and healthcare expenses at Baby Bonus-approved institutions, including clinics, childcare centres and kindergartens.

• Join Invest Editor Lorna Tan for her talk on retirement planning via CPF at Agape Village, multi-purpose hall, level 1, 7A Lorong 8 Toa Payoh, from 7.30pm on Feb 22. To register, please e-mail agapevillage@caritassingapore.org or call 6801-7400.

A piggy bank to kick-start a child's savings journey


For finance executive Melvin Leong's first child, it was a piggy bank that started the conversation rolling about good money habits.

Mr Leong, 40, had a couple of piggy banks around the house and daughter Olivia, now six, started to notice her parents putting coins in them.

He recalls: "Sometimes she would take the coins out to play and like all kids, she enjoyed putting the coins back too.

"From then on, it was a gradual process of showing her that coins have different values, followed by dollar notes, and then when she was proficient enough, we showed her how to add and subtract."

Mr Leong, a principal consultant at IHSMarkit, is married to programme manager Sinyee Yap, 35, and they also have a three-year-old son Quentin.

The couple constantly remind their children to distinguish between their needs and wants. More importantly, they wanted to inculcate in Olivia and Quentin the values that they should cherish what they have, show gratitude and not be wasteful.

To teach them the idea of deferred gratification, they set rules on things like having ice cream once a week and allowing the children to decide which day.

Olivia is in primary school this year so her parents have started giving her a daily allowance and her personal piggy bank for her savings. Mr Leong says: "We asked her to think about what she could do with the money she's saved. For a start, it is saving for a bigger toy she'd like to get, but we hope to progress her to think about other things that may become important to her in future."

As a sweetener, every dollar Olivia saves gets a 10 per cent upfront bonus from her father, so she has been rather enthusiastic.

Still, the couple try not to be too prescriptive on what Olivia can use her allowance on.

"We feel it would be better to let her find her way around and make mistakes. It is important that she learns that there are consequences with the decisions she takes," says Mr Leong.

For instance, in the second week of school, Olivia spent a day's allowance on stickers, but that fortunately was a one-off. She also tried buying food from the canteen, which most of the time ends up wasted as she is a slow eater with a small appetite.

Since then, Olivia has asked her mum to pack her a small snack for recess. That way, she gets to save her allowance in her piggy bank.

Mr Leong has bought a Tokio Marine endowment insurance plan with a $200,000 sum assured for Olivia's future education needs, and will set one up for Quentin soon.

The children also have had their Child Development Accounts since birth. Both are with OCBC.



Offerings from banks for parents

HSBC PREMIER LITE

The HSBC Premier Lite Savings account offers parents an opportunity to start saving early for their children.

To be eligible, the individual (resident/non-resident) must be at least aged 18 and a HSBC Premier customer while the child must be 18 and under. The minimum initial deposit is $1.

Visit https://www.hsbc.com.sg/accounts/products/premier-lite/ for more details.

POSBKIDS ACCOUNT

This account offers an interest rate of 0.05 per cent with bonus interest on a tiered basis. For instance, the first $350,000 earns an interest of 0.050 per cent, the next $650,000 is 0.075 per cent while amounts above $1 million will receive an interest of 0.1 per cent.

There is no minimum deposit and balance requirement until age 21. The age eligibility is 18 and under.

If you open a POSBkids account online up until Feb 28, you will get a $18 hongbao from POSB when you deposit and maintain $2,000 in your account for six months (March 1 to Aug 31). Visit www.posb.com.sg/posbkids for more details.

OCBC MIGHTY SAVERS ACCOUNT

This account offers an annual interest of up to 0.8 per cent. To be eligible, the child must be 16 years old or under. There is no minimum deposit required.

Part of the benefits include a priority queue at bank branches on Sundays and exclusive promotional offers shared via e-newsletter OCBC Family Times.

Under the OCBC Mighty Savers CNY promotion, if you deposit $500 to $1,499 of fresh funds, you get a limited edition Mighty Savers pixel art pencil case. Save a minimum of $1,500 fresh funds and you get a limited edition Mighty Savers pixel art backpack.

UOB STASH ACCOUNT

Parents can start accumulating more savings for their children with the UOB Stash Account. This account encourages savings by rewarding bonus interest when the average deposit balance increases month on month.

From now to March 30, parents can maximise returns from their children's red packet money by entering the "Stash it, Cash in" promotion and get up to $880 when they save with their Stash Account. Terms and conditions apply. See www.uob.com.sg for more details.

There is a minimum initial deposit requirement of $1,000 and the child must be at least 15. There is a fall-below-fee of $2 per month (below S$1,000 balance).


Daily experiences offer opportunities to show value of money

​Teacher Chong Keng Kok, 51, and his housewife wife Tham Miaw Ling used to deposit their two children's hongbao into their savings accounts when they were younger. When the children - aged 12 and nine now - entered primary school, the couple encouraged them to save most of the cash while setting aside an amount for a treat or to buy things they like.

Last year, Mrs Chong, 42, started advising them to donate part of their hongbao to charity after reading a parent's post on the POSB Smart Buddy Community.

"It got me thinking about my children doing their bit for charity, as my husband is a regular volunteer at a nursing home," says Mrs Chong.

"Since then, I have suggested to the kids that they set aside part of their hongbao for the volunteers to organise events for the beneficiaries. I hope they can continue with this practice every year," she said.

The couple believe in educating their children about money management early and through daily experiences, as they believe all habits - good or bad - start from a young age.

They seldom buy unnecessary ("wants") items for their children. They instead try to instil the value of money by asking the children why they need the item before making the purchase.

"The key here is for them to understand the "why".

Mr Chong recalls: "There was once when my daughter Xin Yue, 12, who is a voracious reader, wanted to buy storybooks.

"I told her it is not possible as she already has so many books at home and we are running out of bookshelf space. And since she finishes a book so quickly, it made sense for her to borrow from the library instead."

When the children reached the age of six, they were allowed to pay for things to learn about the value of money. They were both given individual money pouches for when they shopped for groceries with their parents.

They used to have piggy banks but now the couple employ the POSB Smart Buddy app to transfer excess pocket money back to the children's savings accounts. Occasionally, they will log in and let their children see how much they have saved.

Mr Chong encourages his children to buy Smart Buddy stamps from the school bookshop.

"I explained to them that once they have completed the stamp card, POSB will top up $1, which is equivalent to 10 per cent interest. No other bank is giving such high secured interest.

"I explain to them the concept of interest as 'the bank will reward you when you save money with them'."

The couple do not have any investment plans for the children, but they diligently put some money away in a few term deposit accounts for their future.

Using recess, board games to teach about saving for a rainy day

​ Educators Jeffrey Ha, 43, and wife Colleen Ng, 36, believe in teaching their three children about good money habits and concepts such as saving and spending.

The couple decided it was "most appropriate" to start the process when the children enter primary school because they would have the opportunity to pay for items such as food during recess and learn about making purchases and receiving change.

"When they enter primary school, we provide each of them a piggy bank," says Mr Ha.

"We would distribute the loose change we receive from our daily purchases to the kids, who would deposit the money into their piggy banks. Through the act of depositing, we are able to teach them the need to save for a rainy day."

Their daughters, Ariel, six, and Janine, eight, are in lower primary and get a daily allowance of $2.

The girls are encouraged to save what's left of their allowance into their piggy banks.

"We would ask them what they had for recess daily, and also the balance amount at the end of each day, which would be deposited into their piggy banks," said Mr Ha.

"We also teach our daughters to portion 10 per cent of their weekly allowance for tithing every week," he added.

The couple also teach their children about how their savings can be used to buy presents for special occasions, such as their mother's birthday, or to purchase items they misplace or lose.

The family plays board games like Monopoly and Payday to better understand the concepts of saving and spending.

As Joshua is only two, his parents save the money from his red packets on his behalf.

Mr Ha says his childrens' savings are parked in their individual Child Development Account with UOB.

He also bought an investment-linked insurance policy from Prudential which comes with a monthly premium of $100, with the objective of saving for their education.
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