Sunday, 29 March 2009

Teaching kids to manage wealth


2008/03/29

BUSINESS/YAP MING HUI:Teaching kids to manage wealth
By : Yap Ming Hui


Parents should encourage their children to start saving in the piggy bank at a young age.


MANY high net worth individuals worry that their children may not be competent to manage their inheritance.

So when should the parents inform their children regarding their potential inheritance? If they learn of their inheritance too early, will that knowledge adversely affect their motivation to be self-sufficient adults? In anticipation of their future wealth, the children may not reach their full potential in life.


If they are told at later date, will the surprise adversely affect their ability to maximise the advantage of the inherited wealth? The answers to these questions have very much to do with how well we prepare the children for the responsibilities of wealth? We are supposed to be the best judge about when is the best time to talk with their children as each child is different.


However, it is important to teach the children about how to management wealth responsibly before you tell them about your wealth.


In the best case, you are leav - ing your wealth to children who have developed prudent earning, saving and investing habits. They understand the value of wealth and will respect the time and effort you expended to accumulate it.


Ideally, you should begin to educate your children about finances when they are young. When they are 4 to 5 years old, you can start introducing wealth management concepts. You do not need to tell them how much money you earn. Your objective should be to introduce three basic ideas:

That you earn money by working

That you use money to pay for things your family needs, such as food, clothing, the house, the car and others.

That you save and invest to meet more luxurious goals like overseas holiday or higher education for the children.


Remember that children learn from their parents.


Our children need to see us exercising a consistent approach towards wealth management.


The value of thrift is lost in children who see their parents indulging in luxuries.


The children copy the highlife style of their parents. It is not so much what we tell our children in words but how we express our perception of “having arrived”.


The expensive car, branded clothing, overseas family vacation and the luxurious home are statements that our children are reinforced with each and every day. So rule number one is to be a good example of wealth management to our children.


The concept of saving
One of the earliest wealth concepts you can start with young children is saving.


You should encourage your children to start saving in the piggy bank. To further motivate the saving habit, you may choose to match the fund inside with an equal amount.


When the child is old enough, you can give him allowance and teach him to put half of each allowance in the piggy bank. Half of his saving could be used to purchase what he wants and whatever balance would be deposited in a savings account for long-term saving.


Bring the children to a bank and tell them that this is where you save money for the family. Explain how you save money to do things for the family. You may even open a savings account for them so that they can see the money grows each month because the bank pays interest.


Explain to them the source of money for your ATM card. Otherwise, the children may have the impression that you have endless flow of money to spend.


Regular allowance programme
Giving children an allowance for doing common household chores is another good way to teach wealth management knowledge.


It is important for you to decide early whether your children’s allowance must be earned.


I would suggest that the children should take care of certain chores because they live in a household with other people. It is their contribution to the smooth running of the household. The idea is to instil a sense of responsibility and the concept that you have to work to make money.


Decide also how much should each child get. Will it be based on age, number of chores completed, or will it be the same amount for all? Decide how frequent they will get their allowance.


Very young kid may have trouble waiting to buy things and should get the allowance weekly. Otherwise, they may finish spending their allowance before the next is due.


Older children may get the allowance on monthly basis.


They need to learn about spending carefully, making it last for at least 30 days.


Living within their means
This is definitely a great wealth management concept for all ages. It simply means that no bail-out when the children cannot make his or her allowance stretch for the whole month.


You simply must not give in.
Lots of parents would give in and bail the children out. Life would not provide your children a bailout when he or she is an adult.


We have to let the children learn to manage money the hard way. Eventually, the child will get the message and live within the allowance, now and for the rest of his life.


The concept of investing
As your children start their secondary education, you can begin to share with them the concepts of investing in stocks and unit trust.


Select companies that they can identify with and track their performance in the newspaper. When the child gets older, you can buy individual stocks to give them a feeling of ownership in the business.


We can definitely teach our children many wealth management lessons. However, the children learn most by observing and practising.


They learn good wealth management habits, like many other habits in life, by imitating their parents.


So, it is important to make sure you keep your wealth management affairs in order.


Yap Ming Hui is the managing director of Whitman Independent Advisors Sdn Bhd, the first multi-family office in Malaysia

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