Book of Wise Investors

The reason for teaching kids how to value money is very simple – you don’t want to save and scrimp on one hand so that your kids can splurge all on the other hand.

If you don’t do so now, it will be problematic when kids become adults and their toys become expensive.

Here are some of my humble suggestions for instilling kids of various age groups the value of money.

Ages 0 to 3

Under this age group, you don’t give them any money as they may mistook dollar notes and coins as food and sallow it.

Not only do you lose some money but that have to spend a few thousands on medical bills.

Ages 4 to 8

1. During a trip to shopping malls, explain what $10 can buy and what $10 is unable to buy.

This is to show them the value of money.

2. Either let them pay for things purchased or watch you paying for the purchases.

But please don’t let them pay themselves without supervision from you as there is a good chance that how come the cashier does not give change?

Lessons learnt from actions

1. Different physical items have different prices. You don’t want kids to have the idea that a roll of toilet paper worth more than a $50 dollar bill because it contain more materials.

2. There is no free lunch. Everything cost money.

Ages 9 to 13

1. This is the time to get them interested in looking at bank statements but not financial statements of listed companies yet. Arouse their interests in looking at their bank passbook and statements so that they know how much money they are saving.

2. During this age group, normal human kids already develop the ability of deferring consumption for future benefits. Get kids into thinking about medium saving goals and how long they need to save based on parents’ allowance from now to reach that saving goal.

3. Now is still not the age to talk about investing and asset allocations but is the time for them to learn about more efficient allocation of what they have. Like if they have $500 now, spending all $500 on the latest Nike shoes means that don’t have any left for Ipod.

Lessons learnt from actions

1. Saving needs to come first before everything else like investing.

2. Saving means sacrificing current consumptions for future uses.

3. Principle of scarcity – spending $500 on this means that there is no money for others.

Ages 14 onwards

1. Every teenager now has handphones. By giving them a fixed amount of allowance and make them responsible for their handphone bills is a good way to enable them to spend wisely.

2. Do not lent money to them for the latest Iphone purchase or some other luxury items that are deemed extravagant. Tell them to work in a part time job to afford these items by themselves. If really give them the money, reduce their monthly allowances until the amount lent is repaid.

3. Now is the time to start introducing to them the concept of investing, but avoid letting them read Rich Dad Poor Dad, in case they ended up believing that if you want to be rich and happy, then don’t go to school. Illustrate the value of investing by placing some of their money in higher interest savings account, though there is not any as far as I know.

4. Do emphasize that fact that if they start saving and investing now, their little wealth will be much more down the road due to compound interest.

Lessons learnt from actions

1. Learn how to earn what they want for themselves and realize that making money is not easy.

2. Learn the fact of making money work for you.

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