Undoubtedly, during Chinese New Year, the prospect of a sudden red windfall is the only other thing kids look forward to besides a spread of bak kwa and pineapple tarts. Of course, we are talking about red packets, otherwise known colloquially as angpow. Any parent out there can dole out a stern, generic advice to save for a rainy day, but how can your kids be motivated to do so without purpose in sight?
Now, let us answer that question and help you help your children grow their money. For now, just keep them away from the mahjong table.
Alternative savings accounts
For last year’s CNY, a survey conducted by a local bank revealed that 95% of respondents would put angpow money into savings accounts on behalf of their children.
If you haven’t already helped your kids make the transition from piggy banks to actual banks, it is high time you did. Use the power of compounding interest to illustrate to them why the habit of keeping cash is obsolete. When this lesson is over and done with, move on to the next lesson: expose them to options.
of People put Angpow Money into Savings Accounts
Suppose a 7-year-old child starts such an account and his parents puts in the minimum of S$50 each month. By 15, he would have amassed about S$5,012. If this had been done in the traditional means of ‘keeping cash under the mattress’, he would only have saved S$4,800. From here, you can see that through the power of interest compounding, an extra S$212 is earned without lifting a finger.
Let investments work for you
Instead of letting inflationary pressures of the economy erode the value of money saved in the bank, beat it by grasping the amazing benefits of investment. The earlier you start, the better. Generally, rate of returns on investment instruments are significantly higher than bank savings account interest rates. Although some level of risk is involved, the money invested would be working for you rather than the other way around.
One such instrument you can look into is Exchange Traded Funds (ETF), which has proven to be popular and dependable choice among prudent retail investors. Imagine having a basket consisting a variety of fruits that can either appreciate or depreciate in value. Even if one fruit (say, an orange) spoils and goes down, the combined appreciation of the other fruits can balance out your loss, compared to having a basket full of just oranges. That is what ETF is all about, a basket made up of many different stocks, shares and commodities to diversify risks and increase long-term gains.
Moral of the story? Even simple investments can speed up the value of your angpow money faster than normal savings.
Dollar for dollar matching
Similar to start-up grants or our own CPF Supplementary Retirement Scheme (SRS), promising kids dollar for dollar matching can give them a very high incentive to save. Suppose that they accumulated S$200 worth of angpow money over CNY and not touch a cent, that is an easy, straight up S$400 into their bank savings accounts.
The lesson here is not just about making sound financial decisions, but smart ones as well.
B.Y.O.T: Buy your own toys
Whether it is the latest MacBook Pro or a cool set of flying drone, it would be wise to inculcate in kids the habit of earning what they desire rather than giving it to them. Chinese New Year is one of the best times to do just that. By coming to terms that scrimping away their angpow money brings them one step closer to their tech toys and gizmos, they would be more compelled to save it.
At the same time, they would also be one step closer to financial independence.
Spend on the right stuff
Earlier, we mentioned the idea of earning your own keep. By enforcing this mentality at a young age, it overrides any unhealthy, overbearing sense of entitlement. With all the CNY angpow money saved to a sizeable amount, should they really blow everything on Playstation games and whatnots?
Enrol them at a non-academic course of their interest. It could be a drumming class to further their musical talents, or it could be a robotics class to gain a professional edge in the future.
As much as that is something inevitable (if you need more reasons to let them indulge in their play time, moderate gaming can improve cognitive function), teach them the concept of value. Steer them towards spending on something that can give back to them. The perfect example? Enrol them at a non-academic course of their interest. It could be a drumming class to further their musical talents, or it could be a robotics class to gain a professional edge in the future. If you haven’t already heard, coding classes are also hot in demand at the moment.
All things considered, academics still take priority. So, it definitely doesn’t hurt to invest some of the angpow money into our creative writing classes at The Writing Room. Do drop us a call for more details! Who knows, you could be the next Hemingway.
Obviously, it may not be easy to take the initiative to sacrifice precious red packets for the registration fee, when you can spend it on other tangible goodies. Parents, instead of doing it the dated way of hoarding angpow collections, offer to either subsidise the course fees or set up a ‘credits’ system for every dollar saved. Of course, the ‘credits’ would be your money.