Tuesday, September 28

Financial literacy for children: Parents do make a difference


“Give a man a fish, you feed him for a day; teach a man to fish, you feed him for a lifetime”


PARENTING is one of the most researched areas in the field of social science and we are still learning. Parenting is the most fulfilling job that we will ever have, but it’s not without its challenges.

Modern family life sometimes can be stressful. However, as parents we still want the best for our child and our ultimate motive is to build a strong parent-child relationship, which can help lead to better outcomes for our children.

On another note, some research show that financial related education is the least discussed topic between parent-child. About 81 per cent of parents don’t explain financial difficulties to their children, while 76 per cent do not discuss investment topics. Only 12 per cent of parents have family finance discussions with their children.

Looking at the breakdown, I think we are still far behind in giving informal financial education to our children. I believe poor financial habits that adults have today are because of deep-rooted and mooted issues from their childhood.

Since financial education is not taught in schools, it’s up to parents to make sure their children learn the basic personal finance at home. Let’s discuss how as a parent we can play our role in increasing the financial literacy of our children.

Be a role model

Financial education in child development is acquired through observation and imitation from parents. Therefore, positive role models for children are important in motivating their development.

Before telling our children to have budget with their money, we should develop our own budget and show them how we manage our money. The most important idea is of setting a good example.

Parents are the ideal figure in a child’s life. Parents play a major role in how our children turn out to be and children respect parents who walk their talk.


Learning through financial game

Gamification in learning involves using game-based approach such as point scoring, peer competition, teamwork and score tables to drive interest in any area. We can use gamification elements to motivate our children to learn about finance.

The goal is to maximise enjoyment while capturing the interest on financial education and inspiring them to continue learning. Some gamification tools we can use are Monopoly, Payday, The Game of Life, Cashflow for kids (Richdad) and many other online games that teach children about money.


Expose children to financial books

Reading is a fulfilling and beneficial experience for children, as their growing minds capture and grasp financial education easily. Reading financial books increases children’s financial literacy, develops financial vocabulary, increases the interest, and promotes analytical thinking.

There are many financial education books for children such as Money Ninja, Investing for Kids, Smart Money and Smart Kids and many more. Reading is a very good habit that one needs to develop in life. Good books can inform, enlighten and lead children to the right direction.


Let children be involved in household finances

When you are developing a financial plan, setting a family budget or facing a financial crisis, it’s important to involve your children. By involving them, we can build tighter budget or ask children to assist in providing solutions in managing family expenses.

This will improve their financial literacy. Brainstorming family finance ideas with children and saving on utilities by enjoying home cooked meals at home creates good family bonding too.

I have recently started talking on financial matters with my daughter, since she wants to go to overseas for her higher education. I explained to her that she needs to get good grades, so that she can apply for a scholarship. This somewhat has given her some motivation to excel in her studies and made her understand that it’s not easy to earn something in life.


Family values

Family values define what is meaningful to the family as they are the beliefs and ideas that bind the family together for a common goal. Family values can develop positive financial behaviour.

For example, creating a family motto such as ‘simplicty’ or ‘minimalist’. No matter what definition of family values, a set of family values provides a moral compass, clearly articulating the attitudes and meanings the family associates with financial beliefs.

These family beliefs define what is important and what is good. They help teach children the difference between right and wrong when it comes to financial decisions.


Introduction to investment

While saving is an easy way to begin a child’s financial journey, investment is the next necessary step in making money work. We should point out the differences between saving and investing and go over the risks and rewards of investment with our children. By investing, children are not only keeping their money, they are making it work for them.

It’s been said that money is a bad master, but a good servant. Explain the term inflation, time value of money, compounding, risk and returns, to them. Once children have some experience, let them invest a small amount of money in robo advisors, unit trust, bond or stocks. We can set a custodial account and contribute part of their savings for investment.

There are many evidences on lack of financial literacy being a global problem. The real question is, how can we play our part as parents? Education starts at home. We can address financial education to children at a young age. Financial education allows children to be more financially independent and create a better life for themselves. There is no doubt about it, good financial literacy would be better for their future. It’s never too early to teach children about money.

The earlier they learn, the better they will be at financial literacy once they become adults. We blame the economy for the present financial problems, that might be partially true but that is not the whole story.

A lot of personal financial crisis that we experience as adults are actually due to poor financial planning. By teaching our children about money early, we can save them a lot of financial despair, freeing them up to pursue what they truly want to do in life.

Gunaseelan Kannan, CFP, a Financial Adviser Representative by Bank Negara Malaysia and a Licensed Financial Planner by Securities Commission (CMSRL/B4198/2013), is currently pursuing his PhD research on financial planning and financial technology. He also lectures on accounting, finance and business fields in Asia Pacific University of Technology and Innovation (APU). He is the Winner of Malaysian Financial Planner of the Year 2020, from Financial Planning Association of Malaysia. He can be reached at [email protected]