Financial Planning for Children

Instill the Right Values

We try our very best to raise our children right. Just like we teach them morals and ethics, we have to let them learn about money and finances from young. By instilling good financial habits in your children, you are coaching them to become financially responsible adults. Teach them the principles and allow them to practice them on an appropriate scale from an early age. The lessons learned during an impressionable age will remain for a lifetime and form the basis on which they live.

 

How to Teach Children about Money Management

When it comes to teaching, there are no rules. With a little creativity, the possibilities are limitless.

~ First Thing First
  In order for children to appreciate the value of money, they must first know where money comes from. Let them first understand that someone has to work hard and earn the money. Explain that money is deposited into the bank before it comes out of the ATM and that credit cards allow you to pay for things first but the bill will come to you at the end of each month.
~ Give them a 'salary'
 

This is a wonderful teaching tool. It can help you achieve multiple teaching objectives:

~ Understand That Money Does Not Grow On Trees
~ Pick Up Healthy Spending Habits
~ Practise Delayed Gratification
~ Treasure What They Have
~ Maximise Their Potential
~ Inculcate a Savings Habit
  You can encourage your children to save by showing them the wonders of saving. When your children discover that they do not have enough money to buy their favourite toys, it is an opportune time to introduce to them that saving money can help them achieve their goals.
~ Differentiate Between Needs and Wants
  In many young children's minds, saving money is all about buying more toys. Let them know that before buying fancy items, you must first use money to pay for needs like housing, water, electricity and medical bills. Introduce to them the concept of 'save for a rainy day'. Then they can save some of what's left over for pampering themselves.
~ Encourage Goal Setting and Budgeting
  Once your children have a good understanding of savings and making tradeoffs, they can progress to goal setting and budgeting. Have your children write down their wish list, along with the cost of the items and the target date they want to attain their goals. With a budget in place, your children can clearly see when they can expect to attain their goals with their given 'salary'.
~ Invest Together
  If you had started saving and investing when you were a kid, you would probably be a millionaire by now. Now you can give your children a jump start to their future by helping and teaching your children to invest.

You can help your children start the discipline of setting aside a certain percentage of their 'salary' for investment purpose. Bring them along to set up a unit trust account into which they can invest regularly. Get them interested by letting your children find familiar names such as Coca Cola, Walt Disney, Nike and Nokia on the unit trust fact sheets and investment reports. You should however refrain from teaching them how to stock pick and market time as that is not the recommended way of investing.

Investing together is definitely a great way to help children learn the basics of money management. It also teaches them larger values like discipline and patience that will serve them well throughout life.
~ Prepare Teenagers for Adulthood
  One very important lesson for teenagers is to spend wisely. At this age, they are vulnerable to peer pressure and enticement by clever advertisements. If not monitored, overspending may carry into their adulthood.

You can consider issuing your teenagers a credit card to train them on its correct use and give them opportunities to practise healthy spending habits. To help them learn the use of credit, set guidelines and parameters such as:

~ They can only buy things that they have the money for with a $x limit.
~ They have to pay their credit card bills with their own 'salary'.
~ They have to pay their credit card bills in full immediately. Illustrate to them how costly it is to carry a credit card balance and the consequences of having a bad credit worthiness record.

 

Help is Available

If you would like your children to start picking up good money management principles and values, your children can attend the fun yet practical workshops conducted by ipac financial planning.

And if you need greater insights to raising money smart children, a licensed financial adviser with relevant experience in educating children can help. A competent adviser can also advise you on the type of unit trusts that are suitable for your children to invest in. The adviser can map out a plan that will preserve and grow your children's little coffers.

Start a partnership with your licensed adviser. Together, you can help your children to become financially responsible and successful adults.

 

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