HfW : Teaching Kids About Money

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Experts suggest that students lose more than two months-worth of knowledge over the summer break. Many parents fill the downtime with outdoor activities and trips to keep kids busy and motivated, and of course, there’s always that mandatory reading list.

I think a great way to keep kids’ minds sharp, regardless of the holiday length, is to teach them about money. If you haven’t started having those conversations yet, you can take advantage of upcoming spring break to get things moving. It’s never too early to start. In fact, when it comes to teaching kids about money, the sooner the better.

Below are my recommendations on ways parents can get children involved in learning and understanding the value of money, so they are better prepared for their future:

Open a bank account. A bank account is the foundation of financial education. Helping your child open their first account creates an opportunity to begin teaching them about saving, fees, and interest. Rather than just opening an account at your current bank, ask them to help you do research on finding the right bank for them.

One suggestion is to choose a bank with a physical location that you can bring your child to. It might not seem important but it can make a big impact on the lessons you are trying to enforce. Taking a special trip to the bank to deposit their money creates a memorable and rewarding experience.

Develop a savings plan. Saving money can often be as difficult as earning it. Consider offering a matching program for every dollar deposited to help incentivize your children to start funding their account. Additionally, you might make saving a condition of their allowance and mutually agree on a percentage that will be saved each month.

Teach them about investing. Prospective retirees are now forced to plan for 20-30 years of retirement. Waiting for that first full-time job to start investing for retirement isn’t enough anymore.

For teens, discuss opening a custodial account or Roth IRA (if applicable). This is a great opportunity to talk to them about taxes, investments, and compounding returns. For an initial investment, consider a broadly diversified, low cost index fund.

For younger children, online games or websites can be useful in teaching kids the basic concepts of investing. Consider Warren Buffet’s recent business venture, Secret Millionaires Club. The online program teaches valuable lessons about money management through a fun, animated series that kids can relate to.

Discuss giving. We don’t just save, spend, and invest money. For varying reasons, sometimes we choose to give it away. Don’t hesitate to include your children in this process and teach them about the concepts of charitable giving. Consider having them research charities on charitynavigator.org, America’s largest independent charity evaluator, and provide you with their suggestions.

It’s never too early to begin. Kids are exposed to the concept of money at a young age. Helping them to understand it and develop good habits early on can be very beneficial to their financial future.

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6 bad money habits not to pass on to your kids

Whether your bills are paid in full at the end of every month or you have to do some strategic budgeting to get creditors off your back, there's a good chance you have some less-than-perfect money habits. As a parent, they don't begin and end with you; they affect your children too, and for a lot longer than you may realize.

Most young adults are entering the world without the basics of financial literacy. Many are taking on massive debt in the form of student loans and doing so without understanding the principles of interest, or saving for emergencies and the future. Though schools have worked to increase financial education among the young, the evidence suggests these classes alone are largely ineffective and must be supported by good financial practices at home, something that doesn't always happen.

Where financial education fails

"On one hand, all education decays with time. But we speculate one of the major problems with financial education is what goes on when kids leave the classroom," says John Lynch, director of the Center for Research on Consumer Financial Decision Making at the University of Colorado Boulder. "Everyone has opinions on money, and those opinions don't always match what they're learning at school."

Money lessons taught in school are largely a use-it-or-lose-it scenario, Lynch says. Much of the responsibility lies with you, the parent, to ensure the lessons sink in, no matter your bad habits or struggles with money.

The potential for parents as teachers

Children from ages 8 to 17 pay close attention to household money issues, but parents are largely dropping the ball when it comes to talking about them, according to a 2014 study in Communication Research Reports. Instead, moms and dads keep quiet when there are struggles with things such as debt and income.

"Children can learn from what they are told," says Paul L. Harris, a Harvard University psychology professor and author of "Trusting What You're Told: How Children Learn From Others." He suggests that parents don't have to be perfect angels to impart worthwhile lessons to their children.

"There's no reason to assume that children will automatically copy what a parent does, especially if the parent concedes that they may not have made wise choices," he said by email.

Thus, a hard look at your own bad financial habits, paired with transparency and good communication, could give your kids the financial lessons they'll need long into adulthood. So what are common habits to avoid and how can you ensure your children don't adopt them as their own?

1. Overestimating your financial acumen

First, admit your mistakes and be willing to learn. If you don't know the best practices for using credit or how to make a budget, learn with your child.

"I think people are not really good at knowing whether they are smart about money or not," Lynch said by telephone. "It's easy for a kid to go home to parents who may have some pretty bad financial habits and don't even realize it."

2. Overspending

Whether you misuse credit cards or prioritize wants over needs, spending more than you have is a sure recipe for insurmountable debt and poor lessons for the kids. Set a budget and make them part of it. Be willing to admit when you make mistakes with your money and talk with them about what you could do better.

3. Not saving

Not everyone can afford to save and you may not have an emergency fund. But even if you set up a savings account to pull $50 from your pay every month, you can teach children an important lesson. They need to learn to set aside money for a rainy day and retirement too.

4. Ignoring bills

Got debt? Join the club. But even if you can't afford to pay outstanding bills, ignoring them isn't the answer. Involve your children in a discussion about how you got to this point and about handling responsibilities. Then call the creditors and try to make payment arrangements or get more time to pay. Children should know that sometimes we just have to face the music when it comes to cleaning up financial mistakes, even when that initial call can be gut-wrenching.

5. Fighting about money

Family fights about money are some of the most harmful. When these arguments go on in front of the children, the damage is multiplied. Both parents should learn to talk calmly about money issues; show the children the benefits of cooperative problem solving. If you can't tackle this bad money habit as a couple or alone, don't be afraid to seek professional help.

6. Living paycheck to paycheck

Sometimes bad financial habits are born out of necessity. But this doesn't mean you don't have important lessons to teach. Research suggests children in lower-income households suffer the most when it comes to becoming financially literate. Use these struggles as lessons for your kids rather than staying mum, so they're more likely to make better choices in the future.

As parents, there's probably nothing you want more than for your children to do better than you have in life. Helping them learn from your mistakes is part of the process.

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10 Things To Consider Before You Hit Retirement

Point 6,7 and 9 are reasons why you need to start investing in mutual funds for long term investment.

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You have been working your whole life, saving for your retirement. Most of us have millions of ideas about what it’ll be like when it finally comes to the moment where we break away from the 9-to-5 rut. However, with a few more years to go before the day finally arrives, it’s time to take serious action, and get things in order for your golden years ahead.

Most of us would want to achieve financial freedom by then and having not to worry about money any further. To ensure everything is in order when your last conventional pay cheque comes your way, here are 10 things you need to do:

1. Decide on your goal

Many a times when we plan for our retirement, we don’t have a clear picture of how we really want to retire. Do we want to retire at a small and quiet village, outside of town, or perhaps stay in a small(ish) condominium in town, where everything is within walking distance?

By this time, with just a few years to your retirement, you should really have a clear idea whether you want to upsize or downsize your lifestyle post-employment.

The first question you ought to ask yourself is what you want after you retire. Travel around the world and eventually, retire at one of the Caribbean islands? Whatever your goal is, you need to align your retirement plan towards achieving it.

2. List down your obligations

Before embarking on your adventure after retirement, you should consider any financial obligations you may have that can adversely affect your finances after employment.

Do you still have dependents (parents or children) you have to support even after you retire? Will your child(ren) still be in college, with hefty tuition fees coming your way every few months?

How about your lifestyle? If you have planned for your retirement optimally, you should not have to downsize your lifestyle too much. The key word here is sustainability. You should have a clear idea of how much you need every month during your retirement, and how long your retirement fund will last.

3. Clear your debt

Ideally, you should have cleared all your debts before you hit retirement. By clearing your debts, you improve your net worth and credit rating which might be helpful should you need to take another loan in the future.

Credit card debts are usually the first priority to be cleared off due to its high interest rates, followed by personal loans and car loans. There has been an ongoing debate on whether home loans should be cleared off sooner than needed for the peace of mind of being debt-free. If you think paying off home loan last is a better idea, perhaps you should look into the option of refinancing your mortgage.

Currently, Malaysia’s base lending rate is at 6.85%. Comparing with the historical rates, it might seem to be a little high too high to refinance your mortgage. But consider this: after retirement, you’ll lose your primary source of income (for some, only source of income) and your ability to take up a new loan diminishes.

If you have to refinance your mortgage by then, banks might quote you a higher rate, require a guarantor, or simply reject your application. Perhaps it might be a good idea to lock in a fixed mortgage rate to avoid being exposed to interest rate volatility in times of economic uncertainty.

4. Preserve your assets

When we are still earning an income, we mostly focus on accumulating assets. However, when retirement hits you, more focus should be put on preserving your existing assets.

A person may own multiple properties and be worth millions of Ringgit, but he or she may not be able to even afford lunch! In finance, two terms arise: solvency is the ability to meet its long-term ( more than two  years) financial obligations, and liquidity is the ability to meet short-term (less than two years) obligations by converting assets quickly into cash.

In other words, how we preserve our assets depends on our ability to sustain our short-term needs (daily expenses and outflow) without needing to liquidate (force sale) our assets. Consolidating your assets by consulting wealth management and financial planning advisories may be a good idea to have clearer view of your current financial health and have more control in monitoring and preserving your assets.

5. Create or update your will

To prevent your family from exploding into those family feuds infamously depicted in Hong Kong soap operas, updating your will (or create one if you don’t have one yet) is essential. Jokes aside, it is important to have estate planning so that you can be assured that your family is being taken care off  in the manner of your preference.

Having a will doesn’t just ensure your hard-earned assets are distributed properly and rightfully, according to your wishes, it also helps your family go through the process quicker and with greater ease. Remember, avoid hassles by having different wills for assets in different countries and jurisdictions.

6. Review your investment portfolio

As you retire, you would require a substantial steady stream of income to replace your previous conventional income that takes care of your daily expenses and other obligations.

As result, your capacity or holding power of your investment is limited. Perhaps toning down your investment appetite from aggressive high capital growth equities to a more conservative and passive, dividend paying funds such as bonds or government securities might be a good idea. Reviewing your risk tolerance is essential to sustain good cash flow and preserve your assets.

Here are some financial mistakes you should avoid before you hit retirement.

 7. Establish passive income

If the retirement you envisioned for yourself is one where you stop working completely, it becomes even more crucial for you to establish at least one source of passive income, which will be your new primary source of income.

As an alternative to your investments, you can also create another stream of income by working part-time or taking up freelance jobs. For those who have years of professional work experience, they can opt for consulting or an advisory role to other firms or institutions – this may not exactly be ‘passive’ but if it’s something you enjoy doing, it wont feel like a job for sure!

Setting up a mamak or a sundry shop as a small business might also be a good idea (seriously, mamaks rarely fail and typically have healthy profit margins).

8. Healthcare

The unfortunate thing with healthcare is that it becomes more expensive the older we get. Most people give up one their medical card due to the exorbitant price they have to pay — especially in view of the diminishing income after retirement.

Therefore, it is important for one to have a clear idea of their health and fitness level before they hit their golden years. Prevention is certainly better than cure.

Find out if you have any medical conditions that may require substantial amount of money to finance, especially when healthcare cost is escalating to the tune of 12% per annum. Maintain your medical card, review the policy to ensure it is adequate, then set up a budget for rainy days, that could include medical emergencies.

9. Withdraw your EPF

Should you withdraw everything or should you withdraw a set amount regularly? Prematurely withdrawing and depleting your EPF, even if you can, may bring adverse effect to your retirement savings. Unless you have a strong reason or solid financial plan to invest elsewhere that could potentially provide better returns, EPF should be remained untouched and used as a last resort as this will be retirement fund  for the next 10 to 20 years.

If you don’t think your EPF savings enough is adequate to outlive your retirement years, you can consider withdrawing some of the money for selected investments.

10. Continue working

Retirement is really just a phase that everyone goes through. According to the Life After Work survey conducted by HSBC, 22% of Malaysians plan to semi-retire because they need to bridge an income shortfall.

Review your retirement savings before your retirement to have an understanding of whether you stand financially post-employment. Will you be able to live comfortably on that savings, or do you need to continue working to generate income for your golden years?

For some, the idea of not doing anything for next one to two decades may not be conceivable at all! However, the point is to plan for your retirement so semi-retirement is an option and not a means to survive.

We need to start retirement planning as early as possible in order to have a comfortable retirement in years to come. However, planning your retirement is not just about saving money religiously, but also about making the right decisions at the right time to boost your savings.

These 10 steps should be done just a few years before you retire. This will still give you some room to make up for any shortfalls.

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HfW - Where are you?

At some point in life you will need to financially plan for your well being. So where are you now?

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HfW - Food for Thought

Some food for thought for all walks of life.

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HfW - I save up so I can....

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