Monday, 27 January 2014

How to use your children's hong bao money to teach them financial literacy

When the kids were younger and we took them out, they would invariable ask to buy something. I would have 5 incessant pleas of "Mom, can I buy this… please?" If I said no, they would take another item and say "What about this? Please?" It drove me nuts. And I would have to make a decision to allow the purchase or not. Sometimes just to get them out of my hair so I could shop properly, I would allow them to buy the toys if they were not too expensive. Or if some days they kept badgering me until I lost my patience, it was "All cannot buy!"

So I started thinking about this issue seriously. What did I want them to learn about money? I wanted to teach them to make the decisions themselves, to decide if the item was necessary and if it was value for money. I also wanted to teach them to spend within their means, and to learn values like thrift and charity. And I definitely wanted them to know that money didn't grow on trees, which I concluded when I was young, as my parents bought me everything I asked for.

I was a financial consultant for a decade, and I saw too many adults not having the proper financial skills needed in life. It did not matter if they were earning $2,000 or $20,000. They could be making the same mistakes and I realised that it was not only how much you earned but what you did with your money that mattered.

I formulated a plan. I realised that giving them a little extra in pocket money and teaching them to save to buy something did teach them delayed gratification, but not much else. So I didn't use their pocket money as a teaching tool. I gave them $1 per day for recess starting from Primary 1, with an increment of $0.50 every 2 years. That was to cover their food in school. For all other purchases, I allowed them to keep a small portion of the money collected during Chinese new year, which they were free to use as they pleased for the rest of the year. 
$200 to last them a year
This program commences the year they enter Primary 1. For me, I need to standardise everything so that it's fair and easy for me to remember. However, based on your own family's needs, you can start the child at an earlier or later age as you deem appropriate. Generally, kids from 0-4 are contented with hand-me-downs and creating fun out of simple or recycled objects. It is around the age of 4 onwards where they start to ask for particular toys as seen on TV or something their friends have. So at that age, I started to discuss and teach them simple concepts such as what are needs and wants and how much toys cost in relation to something else. For example, I told #5 that a box of Lego ninjago can buy us 20 packets of chicken rice, and his eyes widened in surprise. When they reached 6, that's when I started to give them a lump sum from their hong bao money to allow them the opportunity to learn the financial lessons themselves.

This is how I derived the figure - I roughly estimated what I was currently spending on each child in 1 year on non-necessities like toys, watches, fancy stationary etc. I rounded it down, and was comfortable with a figure of $200 per child per year to spend as they like. The rest of the money went into their bank account, which is earmarked for their tertiary education. (Another option is to start them off on a smaller amount for the first couple of years, say $100, before increasing it as they get older).

The first time #3 had her money, she was overjoyed and spent it freely. She bought all sorts of cute stationary from her school bookshop, toys when we went to the malls, and even knick-knacks for her friends. I didn't chastise her as I wanted her to learn the lessons on her own. Within a few short months, she was shocked to find that her wallet was empty. She came to me and told me tearfully that she was 'wallet-krupt'. I didn't quite understand, until the older girls told me that it's not her bank account that was depleted, but her wallet. She watched in misery for the rest of the year as the others had money to spend. It also taught them generosity as there were occasions when the others had money to buy something and she didn't, and they bought it for her, knowing that she had fallen on 'tough times'. The favour would be repaid the following year when her finances were better. All these situations mimic real life, and they are teaching moments which can be used to reinforce the things they are doing right and to teach them other options if they are not quite on the right track. I figured that it was better for them to make the mistakes when they are young, than to learn the hard way when they are older and the amounts are more substantial.

So for #3, I instructed her to gather all the things she bought that year, and she was puzzled as to where the money went as there was not much to show for it. She realised that $2 here and $5 there amounted to a lot of money, and she regretted buying some of the items which she didn't even want anymore. The next year, she was much more prudent with her buys and by the end of the year, she still had a good portion of the money left.

As for the rest, #1 is very meticulous and she notes down every little purchase and carefully budgets her money to ensure it lasts her the year. #2 never liked shopping and saved almost all of her money. #4 was very careful with her buys from the get-go as she saw what happened to #3. Last year was the first time #5 had his money and he readily spent it all on Lego and didn't mind that the rest of the year he had no money left as he spent the year happily playing with what he had bought. Let's see if his spending pattern changes over the years. It was also really interesting to see how their characters were reflected in their spending habits.

When they reached Primary 5, I gave each of them a little notebook to record their purchases. They will write down the item, how much they have to begin with, how much the item costs, and their balance. This allows them to look back after a year to see if the purchases were worth it or not. If they were still using the items and it was serving them well, that's good as they got a lot of mileage out of it. They will put a tick under the 'Note' if it was a wise buy and a cross if it was not a good buy. It can then be seen at a glance if a majority of their purchases were good or not, and they can try to improve on that the next year. They also naturally realised that a lot of stuff they bought were useless or bought on the spur of the moment. This leads them to consider more carefully in future before they bought something.
Cashbook to record their purchases
The only times they get presents are during their birthdays and Christmas. During the year, if they want something which would take up a sizeable chunk of their money, they will note it down, and if some months later they still want that item, they will request it for Christmas, either from us, their grandparents, or their aunts and uncles. That teaches them delayed gratification and also helped cut down a lot of unnecessary spur of the moment "I really want" type of purchase, only to regret it later.

Sane tip: The best part of my program? No more "Mom, pleassse, just this 1 thing?" I can now shop in peace while they are busy figuring if they should buy an item, or comparing prices, or sharing info with each other about where to get cheaper and nicer items which they were looking for. And instead of thinking that "Mom is mean" when I refuse to buy them something, they are empowered to make a wise decision. They have also learnt the very important skill of budgeting and spending within their means. Giving to charity has also taken on more significance to them, as it is given out of their own pocket.

Save tip: I have saved quite a lot of money, because now, everything comes out of their $200, even concert tickets! They used to bug me to take them to Hi 5Disney on ice, and High School Musical when they were younger. A concert outing could easily set me back $500, not only for tickets for everyone, but they also wanted those silly wand sticks or ice balls which cost more than $10 each! After they turned 6 and had to spend their own money, they bought it once, forking out $68 each. After the show, I asked them if it was worth their money. They replied that it was not bad, but that I had taken them to enough concerts over the years and that they wouldn't go the next year (that was what I had been trying to tell them all along!) And of course, they did not part with their money to buy any of the overpriced memorabilia after the concert. The good thing is that you can still take them to any concerts or events which you feel you want them to be exposed to, and believe me, the kids will be so grateful to you for paying for it :)


Here are more tips on how to keep their birthday parties within $100 while equipping them with financial skills like planning and budgeting.


~ www.mummyweeblog.com - a blog on parenting 6 kids in Singapore ~

13 comments:

  1. Excellent! love this post! very timely too coz we want to teach Isaac too! :)

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  2. That's great, Pam :) I have been sharing this with my friends over the years. Now that CNY is around the corner, I thought, why not share it with everyone?

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  3. Very well written. May I know where did you get that cashbook?

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    1. Hi,

      Thanks! I got it from Japan a few years back. Maybe you can try one of those shops that sells cute Japanese stationary? I'll keep a look out for it, and will shout out if I do see it. If anyone finds it, perhaps you can let me know too, cos quite a few people have asked me where to get it :)

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  4. Kudos to you! It doesn't seem easy, but sure is rewarding!

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  5. great tips!! i'm so guilty of buying them toys to reward them for letting us shop in peace. shall work on this soon now that the kids are a little bit older!

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  6. Thanks! Yes, we used to do that too. Looking back, I realise that kids don't even need so many toys, and most are 'junk' toys that don't do very much for the child. Good luck and hope you regain your peace to shop :)

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  7. Very good tips! I just started some financial education with Ayra too, though she's only turning 4 this year. Perhaps I should consider the ang bao money tips too for her "Mummy please" moments.

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  8. Thanks Claudia! Yes, that's great. You can start with a smaller amount since she's just 4.

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  9. Looks like I'm overdue in teaching my 2 kids financial literacy, but never too late!! I love this post! Thank you so much!

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    1. Dear JT,

      Definitely better late than never! There are many adults who have to learn it the hard way, so whatever age your kids, there is still time before they make the mistakes with bigger sums of money. Thank you for your enthusiastic support!

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  10. So cute! And wise of you. I was thinking it would be even more meaningful if they had to work for the money, and not have it fall on their laps from ang pows. Then they would Really Really think before spending it since it came from hard labour. :P

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    1. Hi Lyn,

      Haha, my kids used to call me meanie mummy.. but now understand where I'm coming from :) Yes of course, I make them work part-time in the holidays when they are in secondary school and they now spend their hard-earned money very wisely!

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