Money-wise, not ‘money-faced’

Question: What is the best way to help my child grow up to be money-wise and avoid the ruts that I fell into while I was growing up?—Concerned parent

Answer: How many new college graduates have entered the workforce with P100,000 in savings? Probably not a whole lot. Yet, you’d think that the many years of schooling would have prepared kids for the “real” world.  You see, here’s where the problem lies. There is too much reliance on schools when learning at home can be as easy and rewarding.

Try our 10-step approach to boosting savings among children. The approach is by no means comprehensive. You may even want to add your own steps or take out a few.

1.) Help set a goal. Children need to visualize things in order for them to comprehend complex concepts like savings and financial freedom.  Saving enough to buy a much sought after toy is one way to help children visualize their goal.

2.) Teach your child to give first. Money is but a tool to realize the more important and practical goals in life. By giving away some money first, like to the church and the needy, you are teaching your child to be free from the clutches of money. Besides, money given away first, cheerfully, faithfully, wisely and quietly will return in other forms of benefits pressed down, shaken together and running over.

3.) Collect loose change. By saving just P3.50 a day for five days in a week, four weeks in a month and 12 months in a year, your child would be able to save P840. That’s more than what somebody, who already has P100,000 to start with, will earn by keeping his money in a savings account in a bank for one year.

4.) Catapult your child’s savings. Tell your child that if he or she reaches a certain level of savings, you will triple those savings (i.e. add 200 percent of what he or she had saved). If you gave your child P50 a day starting at age 5 and told him or her to save at least 10 percent of his or her allowance and also promised to double his or her yearly savings, your child would accumulate P111,600 in savings (assuming the allowance goes up to P100/school day by age 10 and up again to P150/school day by age 15).

5.) Use the magic of compounding. To further grow your child’s savings, you could place your child’s money in a savings account or even a time deposit to make it earn faster. Given modest assumptions on the rate of interest, your child could end up with more than P136,000 by age 20.

6.) Allow your child to taste some of the rewards. Being able to reap some of the rewards from our hard work allows us to better recognize the value of all of that work. So let your child enjoy some of the fruits of his or her labor. Even if you let your child withdraw 5 percent annually, your catapulting his or her savings and using the magic of compounding will ensure that he or she enters the workforce with at least P102,000.

7.) Introduce the meaning of debt and risk. Your child will encounter debt and risk. It would be better that the teachings come from you rather than from just anybody out there. So when your child is already in his or her teens, teach your child the meaning and implications of debt and risk.

8.) Get your child’s feet wet in entrepreneurship. Being in business is a form of investing. Not all are cut out to be businessmen though.  Nonetheless, it would be ideal if your child realized his or her calling to being an entrepreneur when he or she is still young and able to quickly bounce back from any losses.

9.) Teach your child the value of insurance. Insurance is needed by everyone; all the more by young adults. Insurance is a way of managing risks in life and business, just like diversification is a way of managing risks in investing. Teach your child not to run away from a life insurance agent. To be prepared for such encounters, however, you must also teach him or her the right way of buying insurance.

10.) Be a shining example to your child. Perhaps the most important lesson that you can impart to your child is to be a shining example. All of the other nine steps would be lost if you don’t practice them yourself.

Applying these 10 steps in raising your child will definitely help him or her to be money-wise and not money-faced.

If you want to learn more about the foregoing computations as well as the foundation of effective personal cash, debt, risk and wealth management, attend the EnRich training scheduled on May 16, 2012. Visit www.personalfinance.ph, e-mail [email protected] or call (632) 216-1541 for more details.

Take care of your child. Children are among our greatest treasures and blessings.

(Efren Ll. Cruz is a registered financial planner of RFP Philippines, personal finance coach, investment adviser and bestselling author. Questions about the article may be sent by SMS to 0917-505-0709 or e-mailed to [email protected]. To learn more about the RFP program, visit www.rfp.ph or e-mail [email protected].)