Providing for your children’s education is an important part of your financial plan. However, most of that education may not cover basic financial literacy. The money lessons that kids learn from their parents can help fill this gap and instill habits that will improve their Return on Life.
You can teach these three simple financial lessons to your kids with activities that illustrate the basics of financial planning.
1.Pay yourself first
Many families have a rule that a certain percentage of any money a child earns for chores or receives as a gift must go into a savings account. In Malaysia, you can easily set up a savings account for your child with both local banks like Maybank and CIMB, as well as international banks such as HSBC or Standard Chartered. This is a great way to help kids understand the importance of investing in their futures.
However, many parents don’t take the essential next step of showing kids how their savings have grown over time. This can create awkward feelings around money and make it hard for kids to appreciate the end result of their responsible behavior. Just updating a simple spreadsheet together after a big birthday deposit can give kids a greater sense of control and deeper feelings of satisfaction around how they’re handling their money.
2.Money makes money
Your kids might have heard about famous inventors and figures in history, but they can also learn the simple yet powerful lesson about compound interest: “Money makes money. And the money that money makes, makes money.”
In Malaysia, most savings accounts for children, such as those offered by Maybank or HSBC’s Junior Savers Account, provide interest rates that allow kids to see the effect of compound interest. While current interest rates might fluctuate, this is an excellent opportunity to teach your children how compounding works. You can also shop around for different savings accounts as some banks, including international ones like Standard Chartered, offer special promotions or higher interest rates for new customers.
Additionally, Malaysian banks like CIMB, along with international ones such as HSBC, allow parents to open custodial or joint investment accounts, which can be another option for those special self-payments. Introducing your kids to investing through unit trusts, real estate investment trusts (REITs), or even buying gold as an investment can help them understand how investments grow over time. While physical share certificates are less common today, you can still involve your kids in selecting shares of companies they recognize, such as Nestlé Malaysia or Apple.
Check in on these accounts every month or every quarter and show your child how their money is performing. Down periods are an opportunity to introduce the concept of volatility. Even modest losses might sting at first, but seeing their returns move up and down over the course of a year will eventually help your kids get comfortable with managed risk. And if they start identifying other companies they might want to invest in, you can start talking to them about the power of diversification.
3.Plan ahead
Kids often think money works like a vending machine: swipe, tap, punch in some numbers, and what they want magically appears. Instant gratification is such a basic part of their lives that they rarely stop to think about where money comes from or how adults manage it to fulfill so many different needs. They see the end result, but not the plan.
Reviewing your monthly budget probably won’t hold your kids’ attention for very long. Instead, create new budgets that provide for both short-term and long-term goals that will interest your kids. For example, break down the cost of a new bicycle or gaming console over a couple of weeks of allowance money. Or, show them your saving plan towards a big family vacation to Paris or Tokyo to illustrate how your financial plan provides for current needs while also progressing towards bigger goals.
We at Coreplus are always happy to help our clients have Life-Centered Planning conversations with their children, especially older teens who are starting to earn their own money. Give us a call, and let’s start your kids on a path towards a healthy relationship with their money.