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By Celine Tan of theedgemalaysia.com | The Edge – Mon, Mar 21, 2011
KUALA LUMPUR: Your child's wealth can be your financial success story. If you have failed in your quest to become a millionaire, it doesn't mean that your child should too. Time is on his side and all it takes is for you to start things rolling. Here, parents and financial practitioners relate how you can put your child on the millionaire's path.
Tell them why
While many parents want their children to be wealthy, one fear they all have is that the little ones may grow up to be too materialistic. “There is nothing wrong in ‘being rich'. Teach your children the ‘concept' of being wealthy, which is more important than being wealthy itself,” says C T Lim, senior partner of IPPFA Sdn Bhd, a Capital Markets Services Licence holder for financial planning with the Securities Commission.
“Explain to them the purpose of making good money. For example, I always explain to my three kids that although their mother is educated and we can afford to hire a servant, she chooses to devote all her time to their needs; and for this to happen, I have be the sole breadwinner of the family.”
Tell your child that money is not evil but it is an enabler, says Brandon Liew, CEO of Moneytree (M) Sdn Bhd, a company that coaches children and youth about money, investing and entrepreneurship.
“Make it clear that money is not everything, but almost everything needs money. Once you have set the right foundation and the values are in place, it is unlikely that your children will pursue material things.”
Create opportunities for them to earn
A million-ringgit gift to your child may sound impossible. But it is very much within reach, says Ong Shi Jie, head of wealth management of OCBC Bank (M) Bhd. “A monthly contribution of about RM300, made diligently from the time your child is born until he turns 18, and then left untouched until his retirement at 55, will hit the million-ringgit mark [assuming returns of 6% pa].”
But, is “giving” the right way to help your children? Ong takes a leaf from personal finance book, The Millionaire Next Door, in which Thomas J Stanley and William D Danko show readers how to become millionaires: “Built on years of research, it profiles people who have already become millionaires. Their research indicates that most millionaires were supported financially by their parents and ‘the more dollars adult children receive from their parents, the fewer they accumulate, while those who are given fewer dollars, accumulate more',” says Ong.
However, don't give them the money without asking them to do anything. “Or else, the level of appreciation is nominal. You don't want your child to have the perception that ‘no matter what, I will have my mum/dad to fall back on to help me out,” says Liew. “Create opportunities for your child to earn the money.
The plans can be tied to their academic achievements or other milestones. When you make them earn the money, the level of responsibility is far higher. This gives them a clear mindset that they have to ‘do something' to achieve the million-ringgit goal.”
Teach them millionaire habits
Planning financially for your children is not sufficient, you need to teach them some financial ground rules. “they also need to be equipped with the skills to save and grow the money,” says Liew. “Instil the knowledge and money habits so that they can responsibly handle any money you hand over. This will also give you peace of mind.”
It helps to understand the habits of millionaires and inculcate them in your children. “Teach them simplicity and frugality,” says Lim. “The focus should be how to manage money as a limited resource.”
Encourage them to follow their passion
While it is many a parent's wish to have their children graduate with a law or medical degree it is important that you do not try to fit a square peg into a round hole. “Don't quash their harebrained ideas, lest you stunt their budding creativity,” says Ong.
“While I'm not recommending that your child drop out of school and throw his textbooks out the window, nurture his strongest talent and encourage activities that make him happiest. After all, it is their passion that drives it. Whether it will help them arrive at being a billionaire, as most entrepreneurs will tell you, will be a combination of a multitude of factors.”
Your child will never be a millionaire if you force him into something he's not interested in. If you think that your child's passion won't pay, says Lim, help to turn it into a moneymaking idea. His daughter loves animals and her ambition is to be a veterinarian. “As the prospects for veterinarians are uncertain and I don't want to ‘kill' her passion, I encourage her to pursue her passion and give her suggestions on how to turn her ambition into a business. I gave her the idea of building a pet cemetery behind her future veterinarian clinic, which I feel has far greater prospects, and she likes it.”
Getting third-party help
You may be capable of teaching your child about money. “But, can you guarantee that your child is going to learn everything that you teach?” says Liew. “Teaching your child financial literacy doesn't happen in isolation. No matter how hard you try, you cannot provide the group dynamics needed as a part of learning. They need peer pressure to compete among and measure themselves. This is where programmes like financial literacy are important.”
Walk the talk
Children learn by imitating. Thus, it is vital that you watch your own money habits. “Be conscious of your simple everyday actions. For instance, if you use a credit card to make payments, make sure you explain how it works. Educate your child on the connection between plastic cards and real money. Otherwise, your child could misunderstand that the credit card is a tool to easily get things that he wants,” says Liew.
Make sure you are financially independent. Gone are the times when parents raised their children with the aspiration that they would grow into successful adults who would be able to take care of their parents. “The cost of living is going up at a tremendous pace,” says Liew.
“At the end of the day, your children will have their own expenses and families. To avoid being a burden to your children, plan for yourself financially.” This means that you must be on a sound financial footing, says Ong, with adequate insurance coverage, no credit-card balances or high-rate debts and are well on your way to saving for your own retirement.
By taking care of your own retirement needs, it can speed up your children's financial well-being.
Give them a good jump-start
Planning for your child education's funding is important. “Having a plan that helps your children pay their education fees can possibly be one of the best jump-starts. This could at least relieve them of the burden of having to repay their study loans and thus kick-start their personal savings plan as soon as they start their career,” says Lim.
The right amount to contribute should be based on your capacity. If the money you have set aside for them is insufficient, Ong proposes that you “have an open conversation with them. Start talking about the importance of saving money with your children, even when you don't have enough of it. Do not be afraid to share with them these difficulties and be transparent with them on making lifestyle adjustments in order to cope.”
