Investing isn’t solely for adults. It’s never too early to get your child started on the basics of investing so he can be more confident about handling financial matters when he grows up. “It’s no secret that well-known investors started saving and investing from a young age,” says Kean Chan, research analyst from iFast Financial. Here’s what to do:
SAVE FIRST, INVEST LATER
Saving is fundamental to money management. “Teach your children the importance of saving first, before introducing investment ideas,” says Kean. Set up a savings account. What he puts aside from his daily allowance, birthday cash gifts and Chinese New Year hongbao all amount to his savings. “An OCBC study found that the average child receives around $700 every year in hongbao money alone,” shares Ng Li Lian, head of Segment Management (Personal Banking) at OCBC. Encourage him to put part of these funds into a savings account, which will enable him to earn interest. “The OCBC Mighty Savers programme is a fun and engaging way of motivating children to save,” recommends Li Lian. For instance, parents are encouraged to reward their child with a sticker each time he saves $2. When your child has collected 25 stickers, he can visit any OCBC branch to redeem gifts. Use technology. Make use of apps to help educate your child about money management, like Playmoolah’s Moolahverse (free for basic access, $49.90 for premium access). It’s an immersive online platform that tracks your child’s savings and encourages him to make smart financial decisions. “In Moolahverse, we have developed a Goal Machine to help children save up for their own purchasing goals. In it, parents can monitor their children’s savings, and even match them to encourage their children to persevere,” says Wong Bi Ying, marketing lead at Playmoolah.
SET FINANCIAL GOALS
“Parents should communicate that the money being saved or invested is actually for a specific purpose. Without a goal, saving becomes hoarding,” Bi Ying cautions. Explain to Junior that the money will eventually go towards his future needs, such as tertiary education. “This can help him to stay on track when it comes to saving,” she says.
INTRODUCE BASIC INVESTMENT CONCEPTS
While your child might not yet understand complicated investment concepts, such as asset allocation and hedging, he might be able to grasp simpler ideas such as stocks, interest rates, and risks and returns. Teach Junior in simple terms that a stock, for instance, is essentially a share of ownership in a company that members of the public can purchase. Explain that if the company makes money, the shareholder profits; likewise, if the company loses money, so does the shareholder. Don’t confuse him with technical jargon, as this might cause him to lose interest in the subject. Try these too: Let him read books and play games about investing. “Board games like Monopoly are great for teaching young kids how to invest. For older children, you can encourage them to read simple financial books, such as The Richest Man in Babylon by George Samuel Clason,” Sik Swee Yong, manager executive at Advisors Alliance, suggests. Or try How the Market Works (www.howthemarketworks.com), a virtual stock exchange that enables children and adults alike to practice the basics of trading and investing. Enrol him in investment workshops. Moneytree (www.moneytree.asia) offers various Moneywise programmes that introduce children to financial concepts like risks and returns, assets and liabilities, and more. Enrol him into the Basic programme (for kids aged six to eight), Junior programme (for kids aged nine to 12) or Apprentice programme (for kids aged 13 to 17).
START OFF WITH LOWCAPITAL INSTRUMENTS
Blue chip investments: A prudent way to get your child started is to help him purchase a few shares in one of his favourite companies, and then encourage him to track its performance. For instance, if he is passionate about airplanes, you could help him to invest in a company like Singapore Airlines. This can be achieved with instruments like OCBC’s Blue Chip Investment Plan. “With this plan, parents can open a joint account with their child and invest in Straits Times Index (STI) stocks from as little as $100 a month,” Li Lian explains. There are 19 reputable share counters (or corporations) and exchange-traded funds for your child to choose from, such as Capitaland Limited and Singapore Airlines Limited. Unit trusts: A unit trust is also worth considering, due to its small capital outlay. It is essentially a collective investment scheme where investors purchase “units” in a trust. The money collected is pooled and used to invest in a diverse range of assets according to the fund manager’s objectives. Your child earns capital gains when the value of his units rises above the price he paid for them. “Unit trusts are the most effective way of exposing investors to a globally diversified basket of securities, and you can buy a fund from as low as $100 a month,” shares Aw Choon Hui, deputy chief executive officer of GYC Financial Advisory. Investment-linked policies: “These are insurance policies with an investment element,” says Choon Hui. According to Moneysense, a national financial education programme, these policies are similar to unit trusts in the sense that your premiums are used to pay for units in investment-linked sub-funds of your choice. Most insurance companies also offer flexible plans, which enable you to pick a policy term and premium that best matches your financial capabilities and goals. While you’re guaranteed a basic sum of money, your capital gains depend on the investment performance of your sub-fund. “However, the trade-off s for these policies would be higher hidden fees that might erode long-term returns, as well as the limited number of sub-funds offered by the insurer,” Choon Hui cautions.
Other simple ways to further hone your child’s business acumen include:
HOUSEHOLD CHORES: Pay Junior to help out with extra chores. For instance, pay him $10 if he offers to help Dad to wash the car, or volunteers to mop the floor. However, not all chores should be compensated. Your child should still carry out basic responsibilities, such as making his own bed and tidying his room, without expecting a monetary reward.
SMALL BUSINESS VENTURES: Suggest to Junior that he make sandwiches or bake cookies to sell to his classmates or teach him to make and sell crafts from recycled materials. Give him your support and encouragement, but let him make the decisions when it comes to pricing and carrying out sales. This will give him valuable exposure to basic financial transactions and revenue models.
By Delle Chan, Simply Her, February 2015