Money values

Q What are some of financial principles to teach your children?

A Teaching children to differentiate between needs and wants is one of the hardest but most important lessons in today's consumption-driven society.

But it is something that financial advisers say is best taught by example.

'My wife and I show our kids by our lifestyle that our hard-earned money can only be spent on things that we need and can afford.

'We don't buy branded goods, but we do opt for good quality things,' said Mr Salim, who has three kids - Danielle, 15, Ariel, 13 and Aaron, eight.

And as the children get older and grapple with education and career choices, another principle to guide them is 'financial freedom', said Mr Koh.

This does not mean having to earn a lot of money, but just being free from worries about basic money issues and being able to fulfil one's priorities in life while helping others, he explained.

'We try to model to our kids about being stewards to whatever God has given us, which includes money,' said Ms Kwong, who has two kids - Eryn, 17, and Isaac, 14.

'We remind them that money is a useful instrument as much can be done with it. But it is not the ultimate goal in life,' she added.

Savings

Q How do you teach children to save?

A 'Start by getting them to save for their favourite bag or shoe or toy - items that are considered 'wants' rather than 'needs',' says Mr Koh.

From as early as Primary 1, children should be taught about savings and budgeting, as well as bank savings accounts and fixed deposits, he added.

You can also supplement this with lessons on how to save money to help someone in need.

For instance, Mr Kanwal took his two teenage children to an orphanage in India last year to teach that very lesson.

Q When do I start saving for our children's education?

A Start from the time your children are born, said financial advisers. You may ask if that is overdoing it.

Saving for your children's future needs is 'a difficult task for most families, as you would be saving simultaneously for other things, such as your retirement, personal aspirations, new home or car', said Mr Kanwal.

'But the longer you procrastinate, the higher the interest yield needed to achieve your goal,' he noted.

Mr Koh said if you started now to save over a 20-year period and earned an annual return of 8 per cent of that sum, you would need to set aside $3,100 each year for each child's university education.

This is based on this year's fees and expected inflation, where each student requires about $70,000 for a four-year degree at a local university.

Mr Salim opted to buy an education endowment policy.

This forces him to set aside money each month in premiums, so that the children's tertiary education needs will be covered when the policy matures.

But even if you start late, all is not lost. There are personal loans that can be used for education financing, said Mr Kanwal.

Spending

Q How much allowance to give children per week?

A How can money be used in an appropriate way to motivate the kids?

Mr Koh noted that he sets a budget for a reward if his children do well in terms of their attitude and effort - rather than just the results - and he allows them to decide what to buy.

Mr Koh's children, Andrew, 11, gets $12 per week and Amos, 13, gets $22.

Insurance

MR KOH bought life insurance that covers critical illness, with a sum assured of $100,000 when his kids were born. He also took out a hospital and surgical plan that covers medical expenses at a private hospital, with a rider option to remove the co-insurance portion.

Mr Salim said that a good gauge for the amount of insurance to buy for kids is for a sum assured of $50,000 to $100,000. For the higher sum, you can expect to fork out premiums of about $1,400 or more per year for three kids, depending on the type of policy you buy.

Investing

IT IS important that kids learn how to differentiate long term investment from mere speculation even from a young age.

For more complex instruments such as equities and bonds, Mr Koh said 'it is more effective to teach them at later stage when they are 16 years old or beyond'.

Mr Salim believes it may be easier to teach kids about the rationale for insurance, rather than how to buy unit trusts and play the stock market.

Insurance may help children to understand the concepts of hedging for risks, having a disciplined form of savings for a rainy day and getting higher returns for money invested compared to interest on a savings account.

Ms Kwong said: 'We think it is good to teach them about investment as soon as they understand about money and the need to save for rainy days.'

Her daughter, Eryn, has been investing most of her savings and time since secondary school in her online jewellery-making business to earn some extra allowance.

graceng@sph.com.sg