Money matters

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I am often asked about financial literacy and what it means. Do people really need to educate their kids about money, funds and mini bonds? The simple answer is no, of course not. Financial literacy does not mean teaching your kid about P/E ratios or return on investments at the age of six. It does mean teaching them the importance of saving and the need to spend wisely from an early age. It does mean familiarising your child with the local bank, teaching him or her the importance of work, the pride in earning, the value of delayed gratification, and the necessity of being prudent with expenses.

When is a good time to start? Well, ask yourself – is two years old too young for your child to learn how to eat properly or wash his or her hands? Is it too early to teach your child about good manners
at the age of three? You teach your children these things because you want them to be healthy, responsible citizens. Don’t you want your child to be careful with money too?

Surveys show that the average student graduating from secondary school lacks basic skills in the management of personal financial affairs. Many are unable to balance a cheque book and most simply have no insight into the basic principles of earning, spending, saving and investing money.

As parents put shopping cash into the hands of ever-younger children, businesses are also targeting kids as young as eight years old. Children’s spending habits are clearly influenced by their peers and these pressures to build self-confidence through possessions can lead to deep debt in adulthood.

A Discovery Bay resident once wrote to the South China Morning Post about a  young relative who had incurred debts of HK$20,000 and had asked a family member to pay it back. The reader rightly asked if banks should be issuing credit cards to students who do not as yet have any earning capacity? This is a moot point but such practices will only continue. We have to take the responsibility of our own welfare and arm our children with a good education that clearly extols the values of saving and spending within our limits.


When I was about five years old, a vendor used to sell sweets outside our school gates. Once a month, my mother would buy me a candy stick or a lolly. When I was a bit older, she started giving me five cents a month (no, I am not kidding – five cents a month!) I had to save my pocket money to buy my own lolly at the end of three months. That was my first lesson in saving. Statistics say that children who are able to delay gratification become much more responsible with their money. I can’t thank my mother enough for those early lessons. This practice continued when I was older — although the amount of pocket money did gradually increase. The feeling of responsibility I felt and the pride I had in paying with my own money has stayed with me ever since. Nowadays kids see their parents use plastic cards to buy things, and watch them withdraw money from a hole in the wall. It is like magic — money seems to come from nowhere.

Teaching money sense to your kids can be quite tricky. A good way to start is with the very important lessons of saving and spending wisely. Try the Three Jars Experiment. Keep three jars in your child’s room and ask him or her to divvy up pocket money into these jars: one for saving, one for spending and one for emergencies (later you can add another jar for charity). This will encourage the habit of saving from an early age, help your child with mathematics and lay a foundation for budgeting. Ask your child to identify what they are saving for and set a time limit. As a reward, you can give them interest on their savings.

“Businesses are targeting kids as young as eight years old”

Another option is to give your child the opportunity to earn money. Points can be given for chores, with more points for more difficult jobs, and these points can be converted into cash once a particularly number is reached. Again, it’s best if your child identifies a goal or plans on how the cash will be spent.

As your child grows, it is important to clarify the difference between ‘need’ and ‘want’. It is also important to instil the concept of a trade-off. Children will do well to understand that it is not possible to have everything they want when they want it — they have to make a choice.  Parents have to prioritise their spending, and it is a habit children should develop as well.

Money management skills are a lifelong learning process but parents should not wait for their kids to learn the hard way by falling into debt or making bad decisions to teach the importance of such skills.

Caring about the world and caring about money are lessons
parents have the power to teach their children from a young age. While personal finances cause most adults quite a bit of stress, educating your children at a young age will help them grow up to be more financially secure adults – and happier ones, too.

“I spend money I don’t have, on things I don’t need, to impress people I don’t even like,“ so the saying goes. As witty as it may seem, it is a sad reality for many. Ask yourself, “How much do I earn, save, spend and invest in a month?” If you are happy with your answer, then start teaching your child about these good habits with money.

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