I am not an expert in teaching children. So it was a big surprise when my blog post “Another PSLE result release day” which has nothing to do with properties manages to generate so much interest.
On the other hand, the comments in my last post “No new investment for retirees” prompted me to check the follower statistics of the PropertySoul facebook page.
Apparently, the largest age group is between 35 to 44, followed by 45 to 54. To cater to readers in their 30s and 40s, perhaps this blog should cover more topics relevant to families with young or older children.
For a start, should we talk about practical money lessons for the kids?
Why it is us who owe them
Let’s begin with a story.
A master in heaven had some debtors on earth. So he summoned one of his servants to make a trip down to collect the debts on behalf of him. He would join him later after he finished his work.
By the time the master was done, three hours had passed. But one hour in heaven is ten years on earth. Could the servant still recognize his master after three decades? There was only one way. The master would be the servant’s child so he could get his money back legitimately.
The moral of the story is: Our children are our masters from heaven. They are coming to collect the debts from us. No wonder parenthood is filled with responsibilities, compromise and sacrifice. Moreover, despite what we give, we can’t ask anything back.
As loyal servants, how do we ensure our young masters know how to manage their money after they collect the debts from us?
6 money lessons for our children
Let me share the six money lessons that I have been teaching my two daughters since young.
Lesson #1: Know money doesn’t fall out of the sky
Many parents often look at what their children need, then offer them the money to buy. In contrast, our principle is: If you don’t ask, you get nothing.
Say our secondary one daughter’s pocket money is $6 a day. She must remember to ask for it every night. If she forgets or doesn’t make the effort to ask, she has no pocket money for the next day.
In real life, no one will slip money under our door for nothing. Rather, everyone must make efforts to earn money – be it working for somebody, starting a business, or selling door-to-door to close a deal.
Furthermore, parents must teach by example. Don’t gamble. Because when we gamble, we are telling our children that money can fall out of the sky.
Besides, some parents prefer to keep their family financial problem from the children. They think the kids are too young to apprehend and they can’t do anything anyway.
Nonetheless, children can tell that their parents are putting on a brave front. They are upset about not being told the truth and excluded in important family matters. Therefore, it’s better to tell them the truth. Assure them the problem is temporary and we are trying our best to deal with it.
During the pandemic, my daughter’s classmate was upset that her father could no longer afford her favorite enrichment class. There is a popular saying among parents that even if we don’t eat, we can’t let our kids go hungry. However, it is important to let the children know that every family member is equal in the house with their rights and responsibilities. When times get tough, we are in the same boat.
Lesson #2: Be responsible for your own finances
As a parent, I make it a point to teach my children to be independent as early as possible, including personal financial management.
If my daughters don’t spend their pocket money and red packets, they can save the money. They have the right to decide how they want to spend their savings.
Whenever we are traveling, they are allocated a small sum for shopping. Within that budget, they compare prices and decide what is worth buying. Every evening back in the hotel, they make a list of the things they bought. Then count the remaining balance for the rest of the trip. This is called budgeting.
Some people have their parents manage their money. After they are married, their spouse manages the household finances. They have no clue about household expenses, savings or investment. During an unexpected event or a mishap in life, they are at a loss what to do.
A person’s maturity includes the physical, mental and financial aspects. Any grown-up must demonstrate his ability to make and be responsible for all his decisions, including financial ones.
Lesson #3: Have the right concepts about money
Our children go to school for literacy but not financial literacy.
As parents, how often do we talk to our children about money? Did we impart the right money concepts and values of money to our next generation?
“Many people like to talk about money in their daily conversations though they have a narrow mindset about money. Their monetary topics are confined to complaining or worrying about not enough money; competing or comparing with what others have; glorifying or despising those doing well financially, and dreaming or fantasizing they will suddenly get rich overnight.
But money is not the more you talk about, the more you will have it. For these people, nothing much has changed year after year. They seem unable to get out of their own vicious cycle. Over time they develop a strong sense of helplessness about money.
Our preconceptions can make us worship or despise money. As Japanese author Ken Honda said, our past experiences with money can affect how we see money and the rich. Anxieties about money come from our anger and fear – angry with the past and fear about the future. We are in constant fear of lagging behind, missing out, or losing what we have. We are angry that the world is unfair to us.”
Money is no evil. It is neutral. Contrary to our culture, it is not awkward, embarrassing or shameful to talk about money. I won’t shy away from talking to my kids about how to spend, save and grow money. Also, they should know what loans, taxes, inflation, interest rate and currency fluctuation are.
Lesson #4: Understand the difference between price and value
A critical thing I want my daughters to learn is the difference between price and value. Warren Buffett once said: “Price is what you pay, value is what you get”. Price is what we pay for something. Value is what it is really worth.
In particular, I enjoy teaching them what is “when good quality offers good value for money”. A good example is during the pandemic, I went for staycations with them in Singapore’s best 5-star hotels. For girls, it is important that next time they won’t be carried away by guys who flaunt these kind of luxuries in front of them.
Above all, know the differences between good and bad quality. Be able to tell the differences between good and bad taste. The latter has nothing to do with money. For instance, it doesn’t make sense to buy overpriced newly launched condo projects in bad locations which have bad designs and poor quality materials. On the contrary, we can wait for high quality stuff that are finally on discount.
“Ordinary people can seldom tell the difference of price from value. They buy things based on their affordability. When they receive their year-end bonus, they immediately spend on something they want. Once they save enough for the deposit, they can’t wait to upgrade their car or their home.
Rich people buy things based on the concept of worth. They can afford to buy many things. But they won’t pay for it if they think that it is not worth it. Likewise, if they see the value of an asset, they will find the means to acquire it.”
– Vina Ip, No B.S. Guide to Property Investment
Lesson #5: Practice frugality. Don’t spend unnecessarily
There are good guiding principles for spending. Don’t buy what you don’t need. Don’t spend what you don’t have. When you spend money on things, you end up with the things but not the money. Spending money to show others you have money is a sure way to have less money.
“Unlike adults, young kids don’t mind whether their home is buy or rent, an HDB or a condo, a flat or a house, and at a prime location or in a neighborhood district.
All parents want to give the best for their children. But not spending a fortune on that condo doesn’t mean that you love your child less.”
– “The best home for a child”, PropertySoul.com
As parents, we must walk the talk. Because children tend to observe and copy what adults do. Also, they can easily catch our behavior that contradicts with what we said.
On a separate note, how can we ensure that our wealth does not mess up our children’s lives? The answer is creating a “self-imposed environment of scarcity”.
“When I was pregnant with my first child, I read Thomas Stanley’s 1996 book The Millionaire Next Door: The Surprising Secrets of America’s Wealthy. The author talked about how PAW (Prodigious Accumulator of Wealth) parents can avoid the fate of producing UAW (Under Accumulators of Wealth) children. I was convinced to create a self-imposed environment of scarcity by adopting a thrifty lifestyle and living well below our means.
The practice is not for everyone, especially in a society that encourages higher consumption with higher income. It only works for people who truly enjoy a simple life and place non-monetary things over material possessions.”
Lesson #6: Save early and invest early
From young onwards, we teach our girls delayed gratification. It forces them to use their brain and train them to be patient.
Our world encourages instant gratification. Marketers try to convince us that life is short so let’s spend now and be merry. It is because life is short that we must make the most out of it and spend our time on things that are more important than consumption.
The 50/30/20 rule tells us to spend 50 percent on needs, 30 percent on wants and 20 percent on savings. But I would introduce to the children my 30/70 rule that I followed since I started working – 30 percent or less on expenses and 70 percent or more on savings.
As T. Harv Eker said in Secrets of the Millionaire Mind, “If you are willing to do only what’s easy, life will be hard. But if you are willing to do what’s hard, life will be easy.”
The more we save, the faster we can start investing. I helped my elder daughter buy her first stock when she’s 17. I suggest fixed income products too. Any dividend or compound interest can show them how money can grow over time.
Unless we settle all our debts, we can’t really invest and enjoy the profit.
Stick with prudent investments. Those that promise no risk high return or we can invest with other people’s money are lies.
Allow ourselves to make mistakes and fail. But fail early and learn the lessons. I told my daughters that I am not smart and I made mistakes too. Investment is about hard work, patience and discipline. Of course we need luck. That is why we must do our homework to prevent ourselves from being unlucky.
Food for thought
It is never easy to raise children. We didn’t have a finance degree before we made our first investment. Likewise, we didn’t study parenting before we became parents. Everything is through trial and error.
Over the years, my two girls have taught me much more than I taught them. They learned the basic stuff from me. But in return, I have learned more from them through new experiences as a parent and constant reflections on myself.
Below are ten proven tips from the book The Millionaire Next Door on how millionaires manage to raise successful adult children that I find very useful.
1. Never tell children that their parents are wealthy.
2. No matter how wealthy you are, teach your children discipline and frugality.
3. Assure that your children won’t realize you’re affluent until after they have established a mature, disciplined, and adult lifestyle and profession.
4. Minimize discussions of the items that each child and grandchild will inherit or receive as gifts.
5. Never give cash or other significant gifts to your adult children as part of a negotiation strategy.
6. Stay out of your adult children’s family matters.
7. Don’t try to compete with your children.
8. Always remember that your children are individuals.
9. Emphasize your children’s achievements, no matter how small, not their or your symbols of success.
10. Tell your children that there are a lot of things more valuable than money.
Parenting is a never-ending learning journey. Feel free to share your experiences on how you teach your children about money.
Check out my new online courses How To Buy Good Quality Properties and Buy The Right Condos.
You can watch the recording of the presentations at the 2023 Mid-Year Singapore Property Review and Outlook seminar.
The video 2023 Singapore Private Home Market is available for viewing here.
If you need advice on property matters or residential properties in Singapore, you can check out my one-to-one consultation service.
My book Behind The Scenes of The Property Market is available for preview and order online.
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