When is the best time to teach your children about the value of money? There is no definite time frame but it is always good to start as early as possible. Educating, motivating and empowering children to spend money wisely at a young age would inculcate healthy financial habits. To get your children started on the road to financial responsibility, here are six simple tips.
Give them allowance
Giving children an allowance helps develop their ability to make spending decisions. To decide how much to give them, consider carefully the types of expenses that should be covered by the allowance. For example, for a school allowance, it helps to go to the school’s canteen to survey the price of food and drinks sold there before deciding how much an allowance your children will need. If possible, give the allowance money in different denominations to encourage savings. For instance, if the allowance is RM2, give your child a RM1 note and some loose change, so that he can set aside some coins for savings.
Set a realistic goal
Talk to your children about their goals, because it is the key to successful saving. Your children’s savings goals could be a special toy, a book, a bicycle, or the latest Play Station. Whatever it is, it should be realistic and should motivate them to save. However, discuss it with them first. It should be their “goals”, not yours. Then, find out the cost and figure out how much your children will have to save each week in order to buy the item by a certain date. Make sure it is reasonable…
For a younger child, a visual aid will be useful. Cut a picture of the desired item and tape it on a glass jar. As the child puts money in the jar daily, he can see the money in the jar growing towards achieving his objective. An older child can keep track of his savings in a notebook and do the calculations each week.
Teach them the value of investing
Beginning the savings and investing habit early is the key to successful financial planning. If you can, whenever you visit a bank to conduct banking transactions or to invest in a trust fund, bring along your children and open savings accounts for them. Invest some of their savings in a trust fund and watch the money grow with your children.
However, never deny your children the right to withdraw some of their savings or investments for a purchase, because if you do, it may discourage them from saving or investing at all. The idea is to let them know that if they withdraw their money before reaching their goals, it will mean taking a much longer time to reach their desired goals. If they withdraw the money after reaching their goals, then it is their choice too. The bottom line is, regardless of whether they want to withdraw it before reaching their goals (just in case there is an emergency arising or there are some items that they may urgently need) or not, it should be entirely up to them and for them to understand the consequences of withdrawing their money at that particular time
Keep good financial records
Encourage your children to place receipts for the purchases of their toys, books and other stuff in an envelope or keep a simple journal entry that tracks spending and savings. This is to instil a habit of keeping track of their spending so that they will learn to systematically manage their finances in the future.
Here’s an example:
| Week 1 | Daily Allowance E.g. |
Money spent E.g. |
Amount E.g .(RM) |
Money saved E.g . |
| Monday | RM3.00 | • Food • Stationery |
RM2.30 | RM0.70 |
| Tuesday | RM3.00 | • Food • Stickers |
RM2.50 | RM0.50 |
| Wednesday | RM3.00 | • Food | RM2.00 | RM1.00 |
| Thursday | RM3.00 | • Drinks | RM1.00 | RM2.00 |
| Friday | RM3.00 | • Snacks | RM1.50 | RM1.50 |
| Saturday | RM3.00 | – | – | RM3.00 |
| Sunday | RM3.00 | – | – | RM3.00 |
| Total | RM21.00 | RM9.30 | RM11.70 |
(Ed. Note: RM is Ringgit Malaysia, Malaysian currency.)
Allow children to make spending decisions
Learning to spend wisely involves a certain amount of trial and error. Whether their spending decisions are good or bad, they should learn from their spending choices. As parents, you can initiate an open discussion of the benefits and pitfalls before the spending takes place. Encourage your children to do some research before making major purchases or wait for the right time to buy, for instance, during a sale.
Set good examples
Lastly, as parents you must set good examples by managing your finances well and wisely. Avoid unplanned or impulse buying. Avoid having too much unnecessary debt, for instance, credit card debts. For better or worse, children learn how to handle money from their parents. As the saying goes, “An apple will not fall far from the tree”. Therefore, teaching your children how to manage their money well and setting good examples will surely set them on the right track to financial success. So begin now!
The Securities Industry Development Corporation (SIDC) was established in July 1994, and is the training and education arm of the Securities Commission (SC). Its mission is to build human capital, guide investors in the capital market and develop investor education programmes to meet the objectives of the Malaysian Capital Market Masterplan and address national development needs. It is recognised as a premier training centre for capital market participants and regional regulators.
Log on to SIDC-Malaysian Investor website: www.min.com.my for information on how to be a wise investor.