How are your kids spending their hongbao, or ang pow, money? This is every parent’s golden opportunity to educate them on money matters.
Older children and teens will often be tempted to go on a spending frenzy with all that extra cash, but it makes more sense to plan ahead on how you can sock your hongbao money away to achieve your savings goals.
Perhaps you could use your hongbao takings as an initial sum to set up a regular savings and investment plan to accumulate wealth. With careful planning and coupled with the power of compounding, more abundance will come your way in the years to come.
Mr Vasu Menon, senior investment strategist, wealth management Singapore, OCBC Bank, says many parents already make use of the season to introduce the concept of money to their children.
“They can guide their children to set up a savings account with the hongbao money. This explains why we always see a spike in new children’s accounts being set up, and deposits into children’s accounts during the Chinese New Year period,” he adds.
Ms P’ing Lim, head of deposits and secured lending at DBS Bank, notes that DBS usually opens 60 per cent more new POSBkids accounts during the festive season compared with other months of the year.
“Many parents also use hongbao takings to start saving early for their child’s education. For these parents, there are options such as ManuEdu First, an endowment plan designed to provide savings and protection benefits for their child,” she adds.
Here are nine tips for parents and children.
Financial experts say it is never too early for parents to impart good money management skills to their children.
Mr Cameron Senior, head of wealth and international at HSBC Bank (Singapore), notes that most parents discuss these issues with their children only during specific events or festive occasions such as Chinese New Year or when they reach school-going age.
“In fact, the concept of money management can be introduced once a child understands the concept of money and is able to count,” he adds.
“It should also be an ongoing conversation where parents help shape how their children manage their allowances and differentiate between ‘wants’ and ‘needs’. Parents should constantly reinforce the importance of not spending beyond their means.”
Mr Menon adds that teaching children to manage their finances early is the key to forging strong financial discipline for the long term. Besides building on children’s ability to distinguish their needs from wants, an important money concept is how to plan their budget wisely.
Instil a savings habit
Some parents make the mistake of allowing children to decide what they want to do with their hongbao takings, including splashing out and spending all of it if they wish to.
A better option is to teach them the value of forced savings by compelling them to salt away a significant portion of their hongbao money before they spend it all.
Parents should also guide their children on how this cash is spent so that they don’t fritter it away. Bad spending habits, once cultivated from a young age, are likely to be carried into adulthood and could result in financial problems and setbacks later in life, says Mr Menon.
Allocate money for different needs
From an early age, children can be taught how to split their money for saving, spending and giving. And it is important to inculcate the habit of saving before spending.
“Once all the hongbao monies have been collected, your children can take stock of how much they have collected,” Mr Menon advises.
“Get them to put aside a significant part of their hongbao money into a savings account before committing to any expenditure, to instil the discipline of saving before spending. Children should then be guided on how to spend the rest of their hongbao money.”
Mr Senior suggests splitting the money into three portions – saving, spending and giving – and assigning a percentage to each. Typically, the largest portion could be allocated to savings, followed by giving and spending.
You could encourage your child to save by starting a matching programme where parents chip in dollar for dollar for high-value non-essentials such as the latest gadget he adds.
Mr Alvin Lee, head of community financial services at Maybank Singapore, suggests involving children in family budgeting: “Explain to them how much has been spent each week to cover utilities, the home loan and their education fees, and how much money has been saved after deducting the expenses.
“With a projected savings surplus, let the children suggest how the money can be spent, be it on a holiday trip or a children’s concert.”
Weave money lessons into daily activities
Teaching a child the importance and value of money needs to start from a young age and goes beyond just the Chinese New Year period.
It can be a powerful learning experience for children when parents introduce the concept of money by incorporating lessons in everyday activities and even in imaginary play.
“Lessons in money management can include trips to the supermarket, to an ATM and to the bank to deposit the hongbao collections,” says Mr Menon.
“The idea is to help the child realise that money is finite and that once it is spent, it is gone. Hence, it may be better for the child to save most of his hongbao money so that there will be more for spending on his needs in the future.”
He notes that as his wife comes from a large extended family, their two-year-old daughter is fortunate to receive quite a significant amount of hongbao money each year.
He has set aside the money in a savings account and plans to allow her to use some of the funds for her needs and wants when she is older.
“But before she dips into her hongbao savings, I will want her to explain to me what she plans to use the funds for, not just verbally, but by writing down her plans and reasons for clarity of thought. Hopefully, this will train her to think carefully before she spends her savings in the future,” adds Mr Menon.
In addition, Mr Senior suggests that parents use overseas family holidays to explain the concept of foreign currencies and exchange.
Ms Chung Shaw Bee, head of deposits and wealth management for Singapore and the region, UOB, suggests using labelled piggy banks to teach children about budgeting.
“You can suggest splitting their pocket money in the following ways: 40 per cent goes towards everyday spending; 40 per cent towards a short-term savings goal such as buying a toy; and 20 per cent towards a long-term savings goal such as buying a bicycle,” she says.
(Also read: 5 ways to save more money when you have kids)
Learning about needs versus wants
One way to teach children the difference between needs and wants is to split the portion of their hongbao money available for spending into two pools. The needs pool should be significantly bigger than the wants pool. One suggestion is a 70:30 split between needs and wants, advises Mr Menon.
Sit down with your children to explain the difference between needs and wants. Tell them to make a wish list and go through the list with them to distinguish between items that are needs and wants.
Needs would be things that they cannot do without, and wants would be things that they can do without but yet these things make them happy, he said.
Make saving fun
A fun way for children to learn about money is to segregate the new notes in their hongbao collection from the old ones.
“I’ve noticed that kids tend to like to keep the nice-looking notes and can be easily convinced to save the new hongbao notes,” says Mr Gavin Chia, head of investment advisory, strategy and managed investments, Standard Chartered Bank Singapore.
“Occasionally, there are special limited-edition $20 bills that are issued so these are definitely hot favourites for collection and would almost always be put aside for safe keeping. If they save their hongbao money every Chinese New Year, they can naturally become savers by sheer force of habit.”
Some children respond better to visual stimulus and one way to make saving fun and visual is to apportion hongbao money for spending into “saving jars”.
“The larger jars can be for wishes that require more savings, such as a trip to Universal Studios, while the smaller jars can be for a specific toy,” suggests Mr Menon.
“Encourage children to save any monies collected throughout the year in the savings jars. This activity is visually stimulating and will help your children to understand that some items take a longer time to save for.”
Monkey see, monkey do
Children tend to model their behaviour on how their parents behave, so Mum and Dad can have a huge influence. For example, parents could model “needs” versus “wants” by letting their children see them saying “no” to something they want.
Similarly, parents should encourage their children to delay instant gratification by teaching them to compare prices of something before buying.
Most importantly, parents should be mindful in encouraging the association of shopping trips with leisure activities for the family. This may unconsciously encourage their children in connecting spending money with fun, and thinking money is unlimited, advises Mr Senior.
Value of accumulating and compounding
You can reinforce the savings habit by showing children how their hongbao money grows.
Mr Chia notes that big numbers have a “wow” factor. After a few years of crediting the hongbao money into a bank, parents can show the amount that they have saved. Big numbers tend to have a big effect on children, and this can reinforce their determination to save, he adds.
A version of this article first appeared in The Straits Times in 2018.