After Chinese New Year, many children will have ‘earned’ a bit of red packet money, and most parents will instruct their children to “save all of it in the bank for use at a later date.” But financial educator for children Mr Raymond Wong points out that the parents will lose an opportunity to teach their children about financial management if they do so. “When you ask kids how long they should leave it in the bank for, they will definitely answer: ‘Don’t know!’” So Mr Wong suggests that it should not all go into the bank, and instead:

1 ) Allocate 20% of the money for the children to decide how they want to spend it (e.g. if the sum is $1,000, then give them $200 to spend as they wish)

       2 ) Let the children set their own long, medium and short term financial goals. For example, their short term goal may be to    buy snacks, medium term goal is to buy toys and long term goal is to go travel, then they can allocate the money to the various goals. In the process, parents can help their children to set the goals, or do research with them online to find out the cost of that toy or trip they are saving for. However,it is important not to intervene with their choices so that they can learn about decision-making in the process.  

Mr Wong pointed out that the red packet money be exercised in conjunction with the children's pocket money. He suggests that parents give their children $ 10 a day, because it is difficult for them to understand financial management with a very small amount of money. While parents can inject funds to help their children to save, it is important to stick to the principles. For example, if their long term goal is to go on holiday but they will struggle to this amount, then parents can promise to inject $2,000 if the children manage to save $1,000 to reach the required total. When the child only manage to save $500 and want to prey on the emotion of their parents, it is important not to yield to such demands because not only will they fail to learn about financial management, they will also pick up the habit of manipulating things to get their own way. Mr Wongpoints out that: 

Short-term goals – train the child’s ability to save money

Medium-term goal – train the child’s ability to plan

Long-term goal – train the child’s ability to persevere

At this point in time it is important to observe how the children allocate these funds before providing some guidance, for example, when the child puts all the money into short term goals like buying snacks. “Observing how the children use the money gives the parents a window into their future. If a child only knows to obtain instant gratification and buys snacks every time, can you imagine what kind of future they will have without any intervention?” Conversely, if the child puts all their money into long term goals, it is a reflection of their perseverance, “this child is likely to have a higher level of resilience in the future.”

Okay, so how should parents deal with the child who wants to use all the money to buy snacks? Mr Wong points out that this is the time to teach children the concept of ‘needs’ and ‘wants’. Parents normally should only provide children with things that they ‘need’, such as a piece of clothing to keep them warm. But if children want to buy a piece of clothing with a cartoon character to keep them warm then it is something that they ‘want’, and this should be obtained by the process of saving and not by the parents. Mr Wong noted that today’s children are very well provided for, with many things that are easily accessible without having to spend any effort, so the bad habit of living in excess needs to be countered by parents reinforcing the concept of ‘needs’ and ‘wants’.

Then how should the parent provide guidance if everything that the child ‘wants’ are branded items and that they are always saving to buy the top brands? Mr Wong says that buying luxury brands is not necessarily a bad thing, so it is important to find out the motivation behind it. One of his student once said that because top brands have better quality and is more durable, the money is saved to purchase the top brands when they are on special. This is a legitimate response, but this is the time to create the categories of ‘necessary’ and ‘unnecessary’. Money is generally used for the purposes of: 1) savings , 2 ) expenses , 3 ) investments ( i.e. investment in one’s own knowledge or self-improvement , such as books and computers ) , and 4 ) donation to encourage more children to put money on self-improvement or worthwhile contributions can train their children to establish positive values.

Normally parents like their children to do chores or gain good grades and use money as a lure, but is it correct to use money as an incentive? Mr Wong points out that this method is 101% incorrect! Parents should develop their children’s ability to learn for themselves since monetary rewards can only provide a temporary external motivation. However chores and studies should become part of their children’s own responsibility and not associated with money such that children develop incorrect sets of values, thinking that if there is not money involved then they do not need to perform their best. Hence it is not advisable for parents to use money as a reward for doing chores or achieving good grades.