The wealth that we earn is no doubt empowering: it provides access to education, life experiences and the opportunity to create a family legacy. But, what are the most important money lessons parents should teach their kids and teenagers to give them the wisdom to live with wealth as they enter adulthood?
If you’re considering opening a savings account for your children, or advice for guiding your teen or young adult, you have the perfect opportunity to build character through a steady approach to saving, spending, and strategies that can serve them well for life.
Be open. Talking to kids from an early age about what you do for work leads to an understanding of how money is earned – and what it provides for your family.
Helping children develop financial literacy today requires new strategies in an increasingly cashless society. Show young kids how to pay for small items, and count change. When you pay with a wave of a card or your smart watch, explain what you’re doing. Show your children the receipt so they begin to understand a transaction was made and that items and experiences don’t flow into our lives effortlessly.
But one of the best ways to teach kids how finances work is by creating opportunities to manage money.
Involving children in tasks around the home builds independence, organisation skills and a perspective of the needs of others. You might reward your kids for a job well done with extra privileges or pocket money for completing extra tasks. Imparting wisdom on how to manage the money your kids earn – or may receive as gifts – is the next step.
Try giving your children a larger amount of pocket money, less often, such as once a month or every three months. This will make them think more about how they’ll use it – and how to make it last until next time. If they’re little, set up a chart to help track their progress.
As soon as you decide to give your children the responsibility of managing some money, get them used to a balance of saving, spending and budgeting.
Introduce the concept of paying for an item via a ‘Spend’ fund. Use this fund for short-term needs or treats: a new toy or app. Older kids and teens could use this for entertainment when they are out with friends. You can pay for items on behalf of your children – remove the money from their ‘Spend’ fund afterwards.
Give them a budget for what they are able to spend. Learning the discipline of budgeting will serve your children well when they enter the real world.
This fund is for big-ticket items your children have their eyes on. Consider giving your children an incentive for saving, such as a bonus for each milestone they reach.
If your children are receiving pocket money and hold a mobile phone, consider introducing them to an age-appropriate app that features pocket money, savings and chore tracking features.
If you’ve already set up your children with a bank account, it may be good to get them more involved as they approach their teens. Go through the transaction history with them. Talk about when a deposit was made and why, and how much interest they’re earning as their savings grow via the bank’s mobile app.
Time has a strong impact on generating long-term wealth: the sooner your teen or young adult thinks of making their savings work for them, the better equipped they are to achieve their own goals in life.
If they have a dream, such as a year of travel, use that goal to demonstrate the power of compound interest versus simple interest, and the cumulative effect of interest on the base amount as it grows.
The next step in making their money work harder is an introduction to investing. It’s still wise to start small with products, services and brands that they know while they build a sense of judgment and strategy. Teens may not own stocks or financial assets outright, but you can consider establishing a custodial or a joint investment account* to hold a stock portfolio.
And if you feel it’s time for a supplementary credit card*, show them how to use one responsibly by understanding and assessing the terms and conditions, and how to take advantage of a rewards program.
The key to setting your children up for success is communication and collaboration. At this stage of the journey, include them in conversations and decisions around finance on a deeper level to build their awareness of the family vision and strategy for wealth management.
Alongside developing a strong work ethic and learning how to use wealth wisely, growing up with an understanding of financial health is perhaps one of the best lessons you can pass on.
Discover a world of wealth opportunities in Singapore
This video/webcast/article is provided at your specific request and for general information purposes only. It is not intended as a recommendation nor an offer or solicitation for the purchase, loan, swap or sale of securities, financial products, services or currencies. Neither all nor part of this video/webcast may be reproduced or copied in any manner without the written consent of Citibank N.A. or its affiliates or subsidiaries ("Citi"). This video/webcast/article has been prepared without taking account of the financial objectives, situation, or needs of any particular investor. Any person or entity considering an investment should consider the appropriateness of the investment having regard to their financial objectives, situation, or needs, and should seek independent advice on the suitability or otherwise of a particular investment.
Investments are not deposits, are not obligations of, or guaranteed or insured by Citi, or by any government, insurance agency or other public institutions, and are subject to investment risk, including the possible loss of all or part of the principal amount invested. Past performance is not indicative of future performance; prices can go up or down. Investment products are not available to US persons.
Investors should be aware that it is their responsibility to seek legal and/or tax advice regarding the legal and tax consequences of their investment transactions. If an investor changes place of residence (including tax residency), nationality, or place of work, it is his/her responsibility to understand how his/her investment transactions are affected by such change/s and to comply with all applicable laws and regulations as and when the same become applicable. Citi does not provide legal and/or tax advice. If you have any questions, please contact your Relationship Manager.
Please click on the following link for other important disclosures associated with this video/webcast/article, including but not limited to disclosures relating to certain risk factors and/or specific country disclosures that are applicable to you, depending on the country of your residence: asia.citi.com/wealthinsights/country-disclosures