Most financial planners in Malaysia will have witnessed firsthand the profound effect financial literacy can have on an individual’s life. Now imagine if this was taught at an earlier age.
Parents play a critical role in shaping their offspring’s financial futures. One of the best ways to do this is by leading by example and showing responsible money-management habits their children can adopt.
Here are some strategies mums and dads can use to help ensure their young ones grow up to be financially responsible adults.
1. Setting a budget
Budgeting, which involves tracking income and expenses, setting financial goals, and allocating funds accordingly, is an essential aspect of financial management.
By creating a budget, parents can teach their children the value of living within their means and making informed financial decisions.
Create a visual representation of the household budget, such as a chart or a spreadsheet, and explain each category (housing, utilities, groceries, etc.) to your children.
For instance, if your monthly grocery budget is RM800, discuss how you arrived at this figure and what items are included. Talk about the family’s financial priorities and goals, and let your kids suggest ways to save money or cut expenses.
Also encourage your children to create their own budgets for their allowances or earnings from part-time jobs. Help them set saving and spending goals and track their progress.
For example, if your child receives an RM50 allowance each month, assist them in allocating RM30 for spending and RM20 for their savings.
2. Saving for emergencies
Emergencies can happen at any time, and being financially prepared is crucial. Parents should aim to build an emergency fund that covers at least three to six months’ worth of living expenses.
This will serve as a safety net in the event of unexpected financial setbacks, such as a job loss or medical emergencies.
Open a savings account for your child and discuss the purpose of an emergency fund. Encourage them to save a portion of their allowance or earnings by setting a monthly savings goal.
If your child’s monthly goal is RM100, explain how this could help cover unexpected expenses or contribute to their future education.
Sharing your own experience of how having an emergency fund helped during a difficult time will further illustrate the importance of being financially prepared for the unexpected.
3. Investing for the future
Investing is a crucial component of financial planning, as it allows individuals to grow their wealth over time. Parents should consider options such as stocks, bonds, or real estate to secure their financial future, and use this to teach their children about the value of investing.
So, discuss your investment goals and strategies with your kids. Explain the differences between various investment options, and discuss the importance of diversification.
If you invested RM10,000 in a portfolio five years ago that has now grown to RM15,000, explain how diversification and long-term investing contributed to this growth.
In addition, consider opening a custodial investment account for your child and allow them to participate in selecting investments. Start with a small initial amount such as RM500, and guide them through the process of researching and selecting investments that align with their interests and risk tolerance.
This hands-on experience will help them learn the basics of investing and give them a sense of ownership over their financial future.
As mums and dads practise and share good financial habits, their children can follow in their footsteps. These skills will not only benefit the young ones themselves, but will also contribute to Malaysia’s financial health and stability as a whole.