There’s a saying that wealth in the family never lasts more than three generations. While the first generation slaves away to earn money, the second generation works hard to spend it. Just look at China’s notorious fu er da, or second generation heirs to business empires, whose only skills are often revving their Lamborghinis and shopping.
If you don’t want to see your kids squandering all your hard earned cash or growing up completely clueless about how to manage their money, you’ll have to teach them about budgeting many years before they’re old enough to earn their own. Here are three ways to give your kids a head start.
Don’t give them too much allowance
Budgeting is all about deciding how best to use your limited resources. If you give your child control over your wallet, you are effectively teaching them what it feels like to have unlimited money. Some parents don’t pay too much attention to how much money they give their kids, and that is a big mistake.
The trick to helping your kids learn how to manage money without actually causing them to starve to death is to find out how much they need to be able to comfortably cover their canteen meals and transport to and from school, and give them just enough for that and maybe a little extra.
This forces them to prioritise and save up for something they want to buy, rather than simply assuming their allowance will be enough to cover it.
Teach them to invest their savings
If your kids receive money during festivals like Chinese New Year or Hari Raya Puasa, rather than confiscating their red or green packets and hiding the money in a bank account they won’t know exists till they turn 21, use this as an opportunity to teach them a little about investing.
Since SGX now allows you to buy as few as 100 shares, even a few thousand dollars are enough to invest on the stock market.
Talk your kid through the concept of inflation and investment gains using simpler analogies, and then teach him a little about share analysis if that’s the route you’re taking. As the money grows, keep the kid updated so he can understand how his wealth is increasing. There are plenty of resources on Youtube that will break things down in an easier to understand format, and using visuals as well, which will help.
If you’re feeling particularly generous, you might even decide to let him access some of his investment gains so he can buy that kodama thing all the kids are playing with these days.
Give them opportunities to earn money
Unless you want your kids to live through a childhood completely devoid of toys, you’re probably going to have to make a couple of trips to Toys R Us before they hit 14. But instead of simply buying whatever they want if they throw a big enough tantrum, teach them to work for what they desire by giving them the opportunity to earn money.
Of course, we’re not suggesting you send them to a sweatshop in China and make them earn their keep. But giving the munchkins opportunities to earn the cash to buy the things they want is a good way to teach them about the value of money. One oft-used method is to dangle incentives in exchange for doing household chores.
If Junior knows that the PlayStation 4 he’s saving up for will take him 100 hours of floor-mopping to buy, he’ll start to realise just how hard it is to earn money—and why that makes it necessary to think hard before making a purchase.
That’s the first step towards making sure he doesn’t end up becoming one of those guys who blow $20,000 at the MBS casino without thinking about how long it took them to earn that amount.
What have you taught your kids about money? Tell us in the comments!