Truth be told, I have been arrowed to write this article by the Boss.
Left to my own devices, this is territory I would rather avoid.
Unfortunately, being the only parent in the team (up till today at least), the least I can do is to pull some weight.
Truth be told #2. This article is long overdue. We were supposed to publish it weeks ago. I have lots of excuses for it being so late but I will only banish one around. —> read the truth #3.
[Free Ebook] How should you invest your first $20,000?
We asked 14 Singapore finance bloggers to share what they would do if they could go back in time and invest their first $20,000. They can no longer rewind time, but you can learn from their experience and hopefully start with a better footing.
Truth be told #3. Writing this article has been extremely difficult for me.
There are easy ways and not so easy ways to come up with an article. I can choose to google some child rearing article about money, slap some points together, pad them up with local context and send it to press.
Or I can choose to really dig deep and confront myself about the type of parent I want to be and how I really want my kids to think about money.
In writing this article, my internal dialogue reached far beyond teaching my kids about about money mindsets. I asked myself about expectations and opportunities, about hurdles and potential.
I thought about how I want my kids to grow and my aspirations for them.
It was an interesting exercise. And definitely a fulfilling one.
So that is the background. Let’s get into the serious stuff.
As parents, my wife and myself are very big on developing Life Skills in our kids. By our own definition, a Life Skill is something that helps us deal with challenges in our every day life. It helps makes life easier and in doing so, it increases the quality of life.
At different stages of life, the Life Skills we require are different. For my two and four year olds, they include simple things like changing clothes, brushing teeth, being able to get their own drinks and of course toilet training. We also taught them how to ride a bike and swim.
Depending on their characters, the Life Skills they have to learn could be rather different as well. My elder son is more emotional and he needs to learn how to calm himself down. The younger one is Miss Oblivious. She would do well to develop a stronger sense of empathy as she grows.
Life Skills are non academic. There are no exams for Life Skills. Nor is it a competition. A swimmer who trains for the Olympics or a performing musician practicing for a recital has elevated his or her craft beyond Life Skill level.
Money as a Life Skill
If we live in Beijing or Paris, being able to speak Mandarin or French will make our lives easier. On the other hand, if we are clueless about the local language, even the simple task of ordering food in a restaurant or asking for directions would be a chore.
Now, we live in a capitalistic society. Capitalistic societies speak the language of money. If we want to thrive in a capitalistic society, we have to learn the language of money. Being aware of money matters and the role it plays in our lives is a massive Life Skill.
Despite their tender ages, here are some mindsets regarding money I hope my kids will grow up with eventually. These are Life Skills that will serve them well in the future.
1. The Importance of Saving
We not only live in a capitalistic society, we also live in a consumption economy. If you need further convincing, look no further than the number of luxury boutiques lining the streets and the luxury cars plying through them.
I have nothing against consumption. But I do believe consumption should come after saving. Not before.
The most common cause of monetary problems and financial ruin is when spending exceed income. To be in the pink of health financially, it crucial to develop the saving habit. And like all habits, the earlier they are developed, the harder they stick.
For children, the importance of saving extends way beyond monetary terms. We look to Professor Walter Mischel of Stanford University for evidence of this.
Beginning from the 1960s, Professor Mischel conducted a series of experiments on children. He left individual children sitting alone at a table with a marshmallow. The children were told that the marshmallow is available to them any time they feel like it. All they had to do was to reach out and pop it into their mouths. However, they were also told that if they could wait until the experimenter returns, they would get two marshmallows instead of one.
The premises then were simple. Mischel wanted to study Delayed Gratification, the act of delaying rewards. He wanted to find out if older kids had better self control, or if one method of distraction works better than another. Unknown to him there and then, he would go on to track the progress of these kids through school and adulthood. The study continued years after actual experiment has ended.
In a 1998 follow up study, kids who exercised higher self control were rated by parents as being more academically and socially competent, verbally fluent, rational, attentive and planful. They were also more able to deal better with frustration and stress and reported lower levels of obesity and drug abuse. Finally, within that group, kids who were able to delay gratification achieve higher SAT scores.
The benefits of a saving habit goes way beyond making someone rich. Saving require discipline and this discipline will benefit a child in many other aspects of his or her life as well.
Two Different School of Savings
Over the years, I have encountered two forms of successful savers. The first group are the saving connoisseurs. They take saving to an art form. They are able to save 110 percent of their income. They are merciless in cutting consumption and refuse to let the court of public opinion judge them for their thriftiness.
Saving is a religion for them and it permeates all aspects of their lives. Unlike most people, it actually pains them more to spend than to save.
The other form of successful savers are the opposite. They have normal functioning brains that send out normal desire impulses. Like the majority of the population, they have the same desires to spend money on specific interests, be it a flashy car or a branded bag or an extravagant holiday. What makes them successful savers is that they recognise that fighting back these desires on a daily basis is a losing battle.
Resistance is futile, they claim, so they will go ahead and splurge on their fancies. BUT! (and that is a very big but), whatever consumption only comes after squirrelling away a predetermined portion of their income into an untouchable bank account.
I have no idea which type of saver will they end up to be eventually. We as parents can only do so much to instil in them the importance of saving and let them decide for themselves when they are grown up.
So. If one day my kids were to come and ask me – Papa. How much of my income should I save? How would I tell them? That brings us to the second money mindset we think it is important for them to have.
2. Life Decision First followed by Financial Decision
I first came across this concept in an interview with Chris Tan of Providend some years ago. In one sentence, in less than ten words, Chris is able to summarize everything that is ‘wrong’ with how our society approaches life and work. Let me explain.
Most if not all the decisions we make in our lives involves money, either directly or indirectly. Making financial decisions is part of modern living.
Take for example, the process of deciding what car to buy. It is a big ticket item, for many of us it involves an installment payment for many years ahead. It is a massive financial commitment.
Or, the place we stay in. It is common aspiration to be able to live in a condominium (freehold, district ten even better). Implicit in the understanding is that compared to public housing, a private apartment comes with a larger mortgage. Every month, a larger chunk of one’s income will go towards upkeeping the loan.
If resources allow, by all means buy the beemer and upgrade to the condo. However, our resources are far from limitless and they are constantly competing to be put to the best use.
On more than one occasion I have heard friends lament that they are sick and tired of their job, they hate their boss, they wish they could spend more time with family or take some time off to pursue their interest. Why not then, I would ask. What is stopping you? The answer would inevitably be – bills to pay.
Perhaps people are just grumpy and need an outlet to vent. Perhaps they relish the comfort of having a stable job (which they hate), perhaps they really do not want to go gallavanting around the world so much after all.
But for those who genuinely do mean what they say, for those who refuse to grow old and let dreams turn into regrets, here is sagely advice for you – make your Life Decisions first. I.e. Decide what is it that you really want to do with your life, what makes you really happy, and then build your financial decisions around it.
If you are sick of work and want to retire early, buying a new car is hardly going to aid the cause. If you want to travel the world to do volunteer work, it is important to tweak your finances now to make it happen some time in the future.
And that is exactly what I will be sharing with my kids. Despite what personal finance experts say about saving 20, 30, 50 or even 80 percent of your income, no two individuals are alike.
For someone who is single and chooses not to start a family, who has adequate insurance coverage and has retirement all mapped out, there is really no reason to save 80% of one’s income every month. They will be better off allocating a bigger chunk to spend on themselves or even to help others.
How much they are able to save and how much they choose to save really depends on what they want to achieve eventually.
Which conveniently brings me to the next mindset.
3. Money is Not Evil. Nor is it Taboo
Of all the many youtube personalities my kids follow, the boy is more into Jason Mraz while my girl seems to be fascinated with Jayesslee (who doesn’t?). She is particularly enamoured with this song.
She calls it the ‘jie jie song’, and latched on to the catchy chorus pretty quickly. So one day while in the elevator at our neighbourhood mall, she was in a self-absorbed mood. Sitting in her stroller, she broke the silence by singing to herself. She sang ‘money money money, money money money, money money money’.
If I have been carrying her and if she had been at everyone’s eye level instead of knee level, she might have noticed some very awkward stares from the uncles and aunties. All eyes were on her definitely, but instead of glances of joy and encouragement you would give when you hear a baby singing, they were looks of puzzlement and disbelief.
Had she been singing about princesses or animals it would have been alright I am sure, but a two year old singing about money sounds just wrong. The temperature in that confined space suddenly became colder.
Once I saw past the hilarity of the situation, the incident really got me thinking. Like many of my peers, I grew up with parents who never spoke to me about money. When I was much younger, I remembered asking my parents how much they earned and I got brushed off unceremoniously.
I never knew how much anything cost. Not only was I never involved in the financial decision making process of the household, I got a feeling that we kids were intentionally isolated from that process.
Perhaps it was an attempt by my parents to protect us from the harsh realities of the adult world for as long as they could. Perhaps it was because they felt inadequate to teach and share stuff with their kids when they themselves were trying their best to navigate the financial realities like any working class couple. Whatever it is, like most of my peers, I grew up blissfully unaware of money matters.
How then does someone learn about money and be good at it?
Talking about money is not Taboo. (Neither is Sex)
One does not ‘have amazing sex’ on the very first attempt. Like what it takes to learn almost anything in life, it takes practice.
We can speed up our learning by reading up, by forming support groups to discuss the issue with other like-minded individuals, or if a capable and forthcoming mentor shows up along our learning journey.
Unfortunately, as Asians, the majority of us are conservative to the core. Sex is the biggest taboo and we would rather muddle along with a lifetime of bad sex than to speak up and ask for help.
How our society treats the topic of money very much parallels how our society approaches the topic of sex. Not convinced? Try asking your lunch kakis from work or good old friends from school two questions. 1. How much do they earn and 2. How is their sex life.
Chances are you will get the very same incredulous ‘are you ok’ look to both attempts. (remember to leave me a comment to tell me how it goes)
Let’s Talk about Money, Baby
As my kids grow, they will have more and more demands for toys and what-nots. Many a times, it will require a lot of effort and a truckload of patience to explain a decision to a kid, especially when the outcome is not in their favour. It is extremely easy though, to give an excuse and make up a reason to fod them off. We take turns to remind ourselves that the more convincing the reason sounds, the more damaging it will be for the kid in the long run.
We do not want our kids to grow up believing that the family is so poor that we cannot afford any single toy from the stores or spare a dollar for their kiddie ride. Neither will they grow up thinking that they can have anything they fancy just by asking for it.
As they grow, we will try our best to involve them in monetary decision for the household. There will be (in fact, at age 4, there already are) many teachable moments in our daily lives and we will try our best not to let them go to waste.
We do this not for our kids to turn out money-minded and materialistic and to deprive them of their childhood, but to make them aware that money is not evil, it is not taboo and that they should be comfortable to bring up any money issues or questions to us.
4. Money as a Means to an End
Let me end off this article with the final mindset I hope my children will grow up to have.
We hear about this ‘money is but a means to an end’ thing all the time. But what does it really mean? And how do we distill it for our kids?
Consider this two statements.
- I want to have a lot of money.
- I want to have a lot of money because I want to retire early/build an orphanage/go sailing around the world.
The first statement sees having a lot of money as an end goal. The second statement is somewhat different because the end goal is to retire, to build, or to sail, and money is but a means to achieve it.
Both statements are legit, but there is one teeny weeny issue with statement #1. And that is – out there in this big big world there will always be someone somewhere with more money than you. Without a vision and an end goal, the more money we have the more our lifestyles get inflated. We move up socially and start comparing ourselves with folks with bigger houses, cars and bank accounts. Without a vision and an end goal, we will never be satisfied.
When the kids grow and start making ‘I want to have a lot of money’ statements like all little kiddos do, I cannot wait to ask them what do they want it for.
I hope one day many years down the road I will be able to revisit this article and think to myself that the kids have been set up properly with the right money mindsets to get them through life. Even better if they are the ones reading it for themselves and eventually understanding the ‘why’ behind everything we do for them.