Chinese New Year is coming once again and for some you might have to spend money away but for some you’ll probably get to collect money instead.
I know parents have different ways of deciding what their child gets to do with the money…..
…..for some, they keep it to recoup their expenses
…..for some, they let their child keep everything (big mistake)
…..for some, they let their child to only keep a percentage of it
I think that the 3rd one will be most ideal because it’s going to help them once they become an adult. This is especially so as the cost of living in Singapore rises every single year and so helping your child early will certainly help them years later.
Here’s why the 3rd option is most ideal:
Once there were 2 boys. One named Gareth and the other named Kevin.
Both of their parents instilled in them the importance of saving money. So every single year in December they would count how much money they have saved throughout the year.
It was always the exciting time of the year for the both of them as they were both eager to find out how much they had saved throughout the year!
They both were great at saving but their parents had different ways of deciding how they were to use the saved money.
Gareth’s parents allowed him to keep the money.
On the other hand, Kevin’s parents didn’t allow that. They took the money away from him as he knew that he’d probably spend it away.
Kevin felt sad and jealous that Gareth’s parents had allowed him to keep the money he had saved.
Kevin said: “I wished I had your parents…!”
15 years later.
They both met together with a group of friends for an outing and Gareth noticed that Kevin was traveling a lot lately.
Kevin was going for small travel trips and wondered how it was possible.
Kevin revealed that it was due to some extra income that he was getting from the savings his parents made him do 15 years ago.
“But I saved too, how is it that you’re able to travel but I can’t seem to afford to?” Gareth asked.
Kevin said “Well, because my parents didn’t allow me to keep the money I saved and put it away in some investment.”
Gareth then realised the difference.
Gareth had saved too but when he was given back the money he saved, he spent it away on “things”.
This time round, Gareth said to Kevin: “I wish I had YOUR parents…!”
From here you can see 2 different ways of managing money. Which of the 2 situations would you rather have your child be in?
If saved money is spent away on buying “things” then it’s gone forever. But if saved money is spent on buying assets (things that pay you), then you’ll start getting paid for spending.
So here’s an example of what you can consider doing with the Ang Pao money:
Say you have a child that is 5 years old and during Chinese New Year he managed to get around $200.
You can consider maybe giving 10% to 30% for him to keep and then you keep the rest in a separate bank account.
After that, do the easiest form of investing instead of keeping the money in the bank. Keeping it in the bank will only de-value the money over the years as cost of living increases.
So what you want to do is the easiest form of investing and that is to invest in the Index. You can read about index investing over here.
The best part of index investing is that every quarter you’ll receive some form of profit sharing from the earnings of different companies back to you.
It’ll be depending on how many shares you have. But with that, the money could grow by 5-8% every year!
In my opinion, I feel it’s one of safest but yet great ways to grow your money every single year. You get to watch that money grow plus you don’t have to hand off your money to some random investment company.
So to sum up:
1. Keep majority of the Ang Pao money into a separate bank account
2. Invest into the index every single year
So i know it may be probably hard for your child to understand what you’re doing. Maybe they might even not like it.
But fret not because you just have to educate them about it and show them the big picture. Kids today always love to understand the WHY behind things. So if you tell them the WHY, it’ll help them to understand much better.
Show them this big picture:
If they are 5 years old and do it faithfully every single year, they will have $3,560.88 by the time they are 15 years old. If every single year the Ang Pao money is saved and invested into the index and let’s say they get 8% on their capital, then that’s what your child will have $3,560.88 by 15 years old.
And so…continue to do that again for another 10 years. At 25, he will now have $10,816.77. What’s more powerful is that by now he has an asset that will give him an extra income on top of his monthly salary.
And by now, he’ll probably understand about money a lot better and they can continue to grow that money or maybe for his 1st home.
This is simple but yet powerful as you’re tapping onto the power of compounding interest.
What do you think about this strategy? What else do you do with your child’s Ang Pao money?
Feel free to share in the comments below.