I was 15 when I first learnt about the importance of money management. My parents had decided that I was mature enough to be given the entire month’s pocket money instead of receiving it weekly like I used to.
“Spend it wisely. This will have to last till the end of the month,” they said.
Somehow, I failed to process either of those statements.
It was more money than I had ever had up to that point, and the feeling of being able to buy anything I wanted was intoxicating. I had $120—ONE HUNDRED AND TWENTY DOLLARS— in cold hard cash! At 15, it felt like I had Beyonce money in my pocket. I may have had a general understanding about saving and budgeting but those concepts seemed less important than HAVING MOOLAH TO BURN.
That first week of managing my monthly allowance was absolute bliss. It was Treat Yo Self Day, all day, every day. I had lunch at McDonald’s a few times, sipped on venti vanilla lattes at Starbucks, went for a movie which would not have been complete without popcorn and nachos, and engaged in some retail therapy by dropping serious dough on fancy stationery from Muji. I was the nerd version of Julia Roberts going to town at Rodeo Drive in Pretty Woman.
At the end of my weeklong spending spree, panic set in. I looked at the $20 left in my wallet and cold realisation crept down my spine: there were three more weeks to go and I had less than a dollar left to spend per day.
Needless to say, I spent those next three weeks pondering the error of my ways. That began my journey in learning how to manage my money better.
When is a good time to start teaching kids about money?
“At its heart, money is about exchanging value, and that conversation begins at the very early stages of a child’s life. Any parent will tell you that children instinctively respond to exchange as a form of communication,” explains Audrey Tan, Founder and Chief Dreams Architect of PlayMoolah.
As soon as kids learn to count (which can be as early as 3 years old), it’s a good time to start teaching them about money. Developmentally, they are able to understand that money is used as a form of exchange for items that they want to receive.
The value of money
The first thing to learn is the value of money.
When my daughter was 4, she was convinced that unlimited money came out of a magic machine called the ATM. One time, she wanted to buy a new puzzle set and we told her that the purchase required money.
“Mom, we can go to the ATM,” she whispered. “You just need to press some buttons and money will come out.”
So close, but no cigar.
We had to introduce her to the real world where ATMs did not give out free money. You have to first put the money there for it to be available for withdrawal. And you have to work in order to make the money that gets put into the machine.
Once my kids understood the constraints of limited resources, we also taught them about the value of things. During grocery runs, I would show the kids how to look at price tags of various items and they would be shocked to discover that a tub of ice cream can cost more than a whole bag of rice.
Budgeting
The next step kids learn is how to use the money that we have most efficiently. That’s where budgeting comes in – to correctly identify where the money should be allocated to.
An easy way to start is to follow the 50-30-20 rule of spending 50 percent on necessities (needs), 30 percent on discretionary spending (wants) and 20 percent to be put aside as savings for a rainy day.
The key is differentiating between necessities and luxuries (even for adults!). This varies depending on who you ask. My oldest son will tell you that gaming is a necessity and will consequently spend his pocket money on a new game instead of other less important things like food because #gamingislife and food can always be had for free at home.
Be that as it may, we had to teach him to allocate a portion of his allowance to gaming needs while spending the rest on actual necessities. A good way to practice budgeting is to make use of apps such as FamZoo, RoosterMoney, Zimble, and Household Account Book.
Saving
We all know the importance of saving but actually doing it? That’s the hard part.
Most experts recommend saving 20% of your income/allowance per month. For kids, this is as simple as putting aside $0.20 every day into a jar, which then gets transferred into a bank account when it’s full. While the amount may seem small, the habit cultivates discipline and delayed gratification, which are lessons that will yield much larger returns when they get older and increase their earning ability.
Bigger kids and teenagers might benefit from apps like POSB Smart Buddy or Revolut Junior. These apps allow them to set savings goals and make cashless payments for essentials.
Investing
Investing can be intimidating if you’re new to it. Just wrapping your head around jargon like asset allocation, equity, mutual funds, diversification, and compounding are enough to make the average person’s head hurt. Add to that cautionary tales about how people have lost their entire life savings in a market downturn and it may all seem like more trouble than it’s worth.
The fundamental principles of investing don’t need to be complicated—kids are able to learn the basics of investment quite easily.
Instead of putting all your money in a tin can under your pillow, put it into a vehicle that will make it grow. This can be in the form of a savings account that yields 0.05% return, a fixed deposit for 0.8% p.a., an ETF or even stocks for substantially higher returns (and considerable risks).
When our kids were as little as 7, we taught them about how a company’s shares are valued and they were given the option to invest in companies they were familiar with, such as Disney and Roblox. They would decide to invest $100 of their savings into a company’s stock and we would purchase it on their behalf using our investment accounts.
Gradually, we introduced other concepts like dollar-cost averaging and portfolio diversification in the hope that by the time they start working, they would have a solid foundation to build upon. In return, they taught me about stonks.
Developing a healthy relationship with money
I really like what Trevor Noah wrote in his book, Born A Crime. “The first thing I learned about having money was that it gives you choices. People don’t want to be rich. They want to be able to choose. The richer you are, the more choices you have. That is the freedom of money.”
That freedom that money gives us allows us to give to others in need and make a difference to those around us. It’s easy to get caught up with accumulating money and lose sight of what makes money meaningful. So while we teach the kids about the importance of giving to others, we also try to model the same behaviour because kids learn through observing how we manage our money.
Audrey from PlayMoolah is an advocate of a flourishing life. “You are a steward and you choose to spend, save, invest or give. Put money in its place and really start living the best life.”
If you haven’t started having conversations with your child about money management, it’s never too late to start laying those building blocks of financial literacy.
