By Helwa Sofni
Raising financially savvy kids to protect their financial future.
Most financial planners in Malaysia have witnessed firsthand the profound effect that financial literacy can have on an individual’s life. Imagine if financial literacy is given at an even earlier age.
Parents play a critical role in shaping their children’s financial futures. One of the most powerful ways to do this is by leading by example and showing responsible money management habits that children can learn and adopt.
Let’s delve into some specific strategies that parents can use to lead by example and to help ensure their children grow up to be financially responsible adults. Parents can help lay a solid foundation for their children’s future by incorporating these strategies into their daily lives.
1. Setting a Budget
Budgeting is an essential aspect of financial management. It involves tracking income and expenses, setting financial goals, and allocating funds accordingly.
By creating a budget, Malaysian parents can teach their children the value of living within their means and making informed financial decisions.
Example 1: 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 MYR 800, discuss how you arrived at this figure and which items are included. Discuss the family’s financial priorities and goals, and let your children suggest ways to save money or cut expenses.
Example 2: 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. If your child receives an MYR 50 allowance each month, help him/her allocate MYR 30 towards spending and MYR 20 towards saving.
2. Saving for Emergencies
Emergencies can happen when you least expect them, and being financially prepared is crucial. Malaysian parents should aim to build an emergency fund that covers at least 3-6 months’ worth of living expenses. This will serve as a safety net in case of unexpected financial setbacks, such as job loss or medical emergencies.
Example 1: 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 from part-time jobs by setting a monthly savings goal. If your child’s monthly savings goal is MYR 100, explain how this could help cover unexpected expenses or contribute to their future education.
Example 2: Share your own experience of how having an emergency fund of MYR 15,000 helped your family during a difficult time. This will illustrate the importance of being financially prepared for unexpected events and the benefits of saving.
3. Investing for the Future
Investing is a crucial component of financial planning, as it allows individuals to grow their wealth over time.
Malaysian parents should consider various investment options, such as stocks, bonds, or real estate, to secure their financial future and use this experience to teach their children about the value of investing.
Example 1: Discuss your investment goals and strategies with your children. Explain the difference between various investment options, such as stocks, bonds, and real estate, and discuss the importance of diversification. If you invested MYR 10,000 in a diversified portfolio five years ago and it has now grown to MYR 15,000, explain how diversification and long-term investing contributed to this growth.
Example 2: Consider opening a custodial investment account for your child and allow them to participate in selecting investments. Start with a small initial investment, such as MYR 500, 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.
Financial literacy is crucial for everyone, and parents are well-placed to play a vital role in shaping their children’s financial future. As parents practice and share good financial habits, their children can follow in their footsteps. By involving their children in the financial decision-making process and leading by example, parents can help ensure their children grow up to be financially responsible adults. These skills will not only benefit the children themselves but will also contribute to the overall financial health and stability of Malaysia as a whole.
What are other ways to raise a financially savvy kid?
About the Author
Helwa Sofni has more than a decade of experience as a Chartered Accountant and held many positions in corporate sector before venturing herself as a Licensed Financial Planner with one of the top leading financial advisory in Malaysia, Wealth Vantage Advisory Sdn. Bhd. This mother of three who resides in Negeri Sembilan, is also a certified Islamic Financial Planner. She truly believes that financial literacy is crucial for everyone in order to live life confidently and peacefully while pursuing one's dreams.