SingaporeMotherhood | Parenting
Teach your Child about Money and Finance so They have a Solid Financial Education and Future
When Aaron Chwee was in secondary school, his father bought him a participating whole life insurance plan. “He told me he did not know much about financial markets, but he wanted me to have an early head start,” the 47-year-old says. “Through this, I took away two important life lessons that I hope to impart to my children: Firstly, to start investing early because the younger you are, the more you can accumulate your financial resources as your salary grows. Secondly, to learn how to manage personal finances, fundamentals in investments and to build mental discipline when it comes to savings.”
With his own children, aged 15 and 18, Aaron and his wife Jane, a Director of Trade Solutions at an MNC, are doing just that. It helps that Aaron has a Masters degree in Applied Finance, and is the Head of Wealth Advisory at OCBC Bank.
The couple started teaching their children about money and finances when the kids were young. “Research has found that habits take root in children by the time they are nine years old, so it’s easier to start children young and help them develop healthy financial habits that stay with them for life,” Aaron explains. “Financial habits ingrained in childhood can have a profound impact: It can set the stage for financial success, security, and the ability to navigate financial challenges effectively.”
It wasn’t just a matter of putting loose change into a piggy bank. Do note that if this is what you are, or have been doing with your children, it’s time to expand your horizons. “Financial literacy goes beyond saving money, it teaches children the importance of planning, budgeting, self-control, and more,” he adds.
As a father, my greatest wish is for my children to be financially comfortable, and not have to worry about their future and debts. My two biggest fears are debt and overspending, and a lack of emergency funds. For the first, it is easy to fall into the bad habit of spending and living beyond one’s means with financial traps like credit cards and payday loans.
For the second, medical and accidental emergencies are the least expected and usually the most expensive financial concerns. Therefore, I have instilled in my children the importance of setting aside a ‘rainy day fund’, especially when they grow up and as we, their parents, grow older and prepare for retirement.Aaron Chwee, Head of Wealth Advisory at OCBC Bank
What is the best age to start teaching my child about money?
The best age is typically around six to eight years old. At this age, children would have formed a basic understanding of money, and many will begin to receive an allowance for primary school.
This is a good opportunity to teach your children about finances with something tangible, such as what their pocket money is for, how much they will receive, and the various choices they can make in using it.
What are the consequences of delaying financial education?
- Feelings of entitlement: Delaying financial education can lead to misconceptions about money, such as thinking that money is an unlimited resource, and may lead children to develop a sense of entitlement, believing they should have certain things without understanding the cost or the need to work for them.
- Poor spending and saving habits: Without early financial education, they may struggle with impulsive spending, debt accumulation, and failing to save for their future needs and goals when they reach their teens and adulthood.
What are the key aspects of money and finance I need to teach my children?
There are three key aspects of finance every child should know when they receive pocket money: Saving, budgeting, and knowing the differences between needs and wants.
- Saving – Open a banking account with your child to teach them how it works and why it can be a good way to start saving their pocket money. You can also show them how to deposit and withdraw money. Going a step further, parents can embark on a meaningful learning excursion with their children at OCBC Wisma Atria, the bank’s largest integrated lifestyle branch, which is designed to inspire conversations around money management fundamentals.
- Budgeting – Help them understand the concept of budgeting by creating a simple budget for their expenses. This can include allocating money for savings, spending, and even a small portion for charity donations.
- Needs vs Wants – Teach children the difference between needs (essential things like food, clothing, and shelter) and wants (non-essential items or activities) to help them prioritise their spending. This will set a good foundation for their future habits in balancing long-term versus short-term goals.
Aaron’s 5 Tips to Teach a Child about Money and Finances
1. Let them earn money through household chores
I’ll reward my child for each chore they complete apart from their basic tasks. For example, I would not reward them for tidying their own room, but I would reward them when they complete tasks like doing the laundry on weekends and helping to buy meals for the family. This teaches them that money is not easy to earn, while relating it to living expenses.
2. Start them saving
Collecting money in a piggy bank helps my children recognise the tangible value of saving. As they grew older, I opened a bank account with them and taught them how best to maximise their returns, which helps them pick up more complex financial knowledge such as interest rates. At the same time, saving teaches children delayed gratification, self-control, and discipline.
3. Let them begin budgeting
When my children had a better grasp of financial literacy, at around nine years old, I started giving them pocket money for a whole week rather than every day. This teaches them the importance of budgeting and not spending it all on what they want right away.
4. Help them set financial goals
It’s similar to saving, but having a goal makes one more conscientious and intentional when it comes to saving for something they want or for a rainy day.
5. Teach them about needs versus wants
When shopping with my children, I’ll ask them to identify things that are essential to the household and things that they want but are not necessary. It’s a good opportunity to explain to them how ‘needs’ are more important while also occasionally granting them ‘wants’.
What is one piece of essential financial advice you would leave to your children?
Imparting a solid set of values and principles to my children is most important, even more so than physical and financial assets. For me, this is sharing wisdom and faith-based principles that will guide my children through life. One of the recent conversations I had with my kids was about how to give and sow in people’s lives. While we mould them to have financial discipline, it should not hamper their generosity to others.
What are common pitfalls to avoid in being a financial role model for the kids?
Children watch and learn from parents a lot more than we realise. Even when we think they aren’t doing so, there’s a possibility that they may pick up lessons or behaviours subconsciously.
- Spending Beyond Your Means: This demonstrates that it’s acceptable to spend beyond your financial capacity, and can lead your children to erroneously adopt the same habits. Set up a savings account, avoid accumulating debt and living paycheck to paycheck.
- Inconsistency: Having ‘cheat’ days or indulging in impulsive spending can send mixed messages. Consistency in your financial habits is key, as it teaches your child discipline and responsibility.
- Financial Secrecy: You might think certain financial topics are too complex to discuss, or that existing debts are not for your children to worry about. However, keeping financial matters hidden from your children can hinder their understanding of money. Be open about your financial situation and involve them in age-appropriate discussions about budgeting and saving.
- Arguing about finances: Heated arguments about money can create stress and instability at home. Instead, engage in constructive discussions with your partner or spouse and present a united front when discussing financial matters with your children.
How can parents adapt their money education approaches as the kids grow?
As children enter their teenage years, their financial education needs will evolve, and they start having greater control over their money. At this age, parents can discuss more complex financial topics such as investing, compound interests, credit cards, and taxes.
At the same time, some children may also get their first proper jobs and explore new ways to earn and spend their money. This is an excellent opportunity to teach them about income, taxes, and the responsibilities that come with earning a paycheck. Show them how to budget and save a portion of their income. However, it’s important to give them space to make mistakes so that they can learn, all while offering guidance and support.
Parents are ultimately role models for their children. However, in the event where children have financial literacy questions beyond the parents’ scope, they can encourage their children to seek external resources and learn about these through trusted financial platforms, or speak with a trusted financial advisor.
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