Children are a tough crowd to please when it comes to giving gifts. Their clothing size changes every few months, while their interests vary just as frequently. As such, many a gift-giver has resorted to simply giving children the practical and useful gift of cash, locally referred to as aguinaldo.
Now, parents may not know exactly when to introduce the concept of money to their child, but these cash gifts actually provide the perfect opportunity. Aguinaldos are usually given in reasonable amounts and only during special occasions - just the right arrangement to teach your child the basics of money management.
When to do it
In his book Rich Smart Kid, author Robert Kiyosaki wrote: “I am often asked, ‘At what age should I start eaching my child about money?’ My answer is, ‘When your child becomes interested in money.’”
Indeed, it’s never too early to teach your little one about money. The sooner a child begins to experience and understand the concept of money, the more prepared he will be when it comes time to finally handling his own funds.
Read the following to see how children usually approach and regard money, according to their age:
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Children five to 10 years old
Kids this age love collecting money, especially coins, without really understanding their worth. This is the perfect time to explain what these pieces of paper and metal are actually for. Share with your child the process of earning money and then spending it to get certain things, while emphasizing the option of saving the money, as well. You may even want to accompany him as he buys a tiny treat, such as candy or stickers, to help show how the concept of money works.
Children 11 to 15 Years Old
At this age, children often have more opportunities to “earn” their own money. Such opportunities include babysitting their younger siblings, helping around the house, or doing other simple tasks. Allowances, which are usually introduced at this time, may also be dependent on a child’s completion of additional chores. (Basic allowance and chores, however, should not be tied together. Chores should be a child’s responsibility, and giving monetary rewards for doing them may take away from the money lessons he’d otherwise learn.) With children of this age receiving money more frequently, make sure they save a portion of their income - say, P25 out of every P100 they get - and learn basic money management skills.
16 years old and above
Older teens tend to incur larger and more frequent expenses, such as clothes, cars, gimiks with friends, etc. They will also begin paying for their expenses as they start going out on their own and becoming more aware of how much things cost. Giving them a certain amount of money, which can be placed in their own bank or ATM account, will teach them how to live on a budget and show them that money is a limited resource. Make sure to monitor their expenses every now and then, and provide them with the financial advice they need.
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What to do
1. Straight to the bank
a. Savings Account
Melvin Esteban, chief executive officer of Motivating Minds, opened his first savings account at the Happy Savers Club of Banco Filipino when he was still in Grade 1. “It was very good discipline and motivation for me - it was like going to a toy store without spending money,” he recalls.
However, it may be a struggle if your child doesn’t understand why he is not able to spend his money gifts. As soon as your tot receives money, ask him if you should hold it for safekeeping first. “If you decide to open an account for your child, bring him along, explain the benefits of saving his money, and make it a fun learning experience,” says Esteban. “Allow your child to keep his passbook, and watch the account grow with each deposit. Also select a bank branch located near your house because you’ll eventually want your child to go voluntarily.”
You can also open a bank account in your child’s name, with yourself as the trustee, and turn the account over once he is of age, says business and financial writer Karen Galarpe.
Advantages: The ease and simplicity - these starter savings accounts require an initial deposit of anywhere from P100 to P1,000, and often come with fun privileges and promotions. These are also very liquid, meaning you can withdraw your money without any difficulty.
Disadvantages: “Bank accounts do not normally give you a great return, [about less than one percent per annum],” admits Chinkee Tan, money coach and author of Till Debt Do Us Part and For Richer and For Poorer. “But when it comes to saving, what’s important is not the amount you save, but acquiring the habit of saving.” Another disadvantage, Galarpe notes, is that “it will take a long time for your child to enjoy his gifts. But good things come to those who wait.”
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B. Long Term Accounts
As your child’s savings enter into the thousands, you may want to consider upgrading to an account with longer terms and higher interest earnings, such as time deposits, insurance, stocks, and the like. These accounts usually require a minimum of a few thousands to tens of thousands, and an investment period of 30 days to several years. It can earn much more than a savings account.
“Time deposits give two to five percent per annum, while retail treasury bonds (RTB) issued by the government may earn five to eight percent per annum,” says Galarpe. “Mutual funds or Unit Investment Trust Funds (UITF) are pooled funds, where a fund manager decides which bond or stock to invest in.”
Aside from the promise of greater profits, long term accounts will also teach your child about the value of discipline, goal-setting, and not touching their savings in order to earn more in the long run. “The money accrued through the years can be used for your child’s college education, graduation gift, or as seed money for a future business,” says Esteban.
Children also have the option to invest in their own insurance, via Pioneer Insurance’s SparXx product. Dubbed as “this generation’s smarter version of the piggy bank,” SparXx allows kids to make bite-sized investments of anywhere from P300 to P5,000 at a time. Pioneer has even released a comic book, Private Iris, in collaboration with Blue Cow author Jamie Bautista and artist Arnold Arre. “It allows kids to read an engaging story, while also teaching them values, such as science, logic, and financial wellness,” explains Bautista.
Advantages: The opportunity to earn a higher return than a savings account, plus, the returns are guaranteed. The money is also diversified and professionally managed. “Just remember the number one rule in investment - the higher the interest or amount earned, the higher the risk,” says Tan. “And never invest in something you don’t fully understand, no matter how profitable it sounds.”
Disadvantages: The money is tied up, meaning you cannot withdraw for the specific term of the investment. The account may also come with management or handling fees, and you may experience a few losses during volatile times. “Ask your bank for financial advice that’s suited to the goals, risk appetite, and investment time horizon for your child,” says Galarpe.
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2. Keep it Personal
“Whenever my children receive money, they immediately divide it into the following: giving, saving, and spending,” says Tan, who firmly believes in teaching his three kids, ages 9, 7, and 4, how to handle their finances while they are still young. “We need to first form good habits in our children, and then their habits will form them.”
A. Giving
It’s human nature for children to think about themselves first - what they want to buy, what they want to eat, etc. In order to break that pattern, we must teach them how to do the opposite and consider others before themselves. Tan, for instance, has taught his children to set aside 20 percent of any money they receive towards giving: 10 percent to church tithing, and 10 percent to charity.
B. Saving
Children are taught how to count and earn money in school, but there is no subject that teaches them how to use it wisely or make it grow. “If money is such an important subject, why aren’t we doing a better job of teaching our children about it?” ponders Tan. “I teach my kids to save 50 percent of their money because I want them to develop the habit of saving. It is never about the amount, but it is all about the attitude.”
If all we encourage our children to do is spend, they will grow up to become spenders. But if we teach them how to save, they grow up to become savers.
C. Spending
Some parents simply opt to let their children spend whatever money they receive. “A relative of mine does this, and one time, her kids pooled their money together to buy a Playstation,” says Galarpe. “Letting children handle their own money gives them hands-on experience on what it takes to save for a particular item.”
Parents, however, should still guide their children on how they should spend their money. “When kids have their heart set on buying something, ask them to think about it for a week - why they need it, if it will be good for them, etc.” she adds. “If both of you are comfortable with the purchase, accompany your child to several stores to canvas prices. This teaches him to compare prices and to find the best value.”
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Try these tips:
1. Patience is a virtue. Whether it’s a bottle of milk or a diaper change, young children are used to getting what they want, when they want it. When it comes to money, however, children need to learn the importance of delayed gratification. Teach them to decide whether something is a need or a want, and how a temporary sacrifice can lead to a greater reward in the end.
2. Show them a visual. Lessons are best remembered when they are shown visually or in concrete terms. For example, if you promise your child a P500 toy for every P5,000 saved, show him all the items that are worth P500. Give the child time to assess the value and price of each, and let him decide on which would be the wiser purchase.
3. Don’t give too much pocket money. “I always encourage parents to prepare food as baon, instead of just giving money,” says Esteban. This ensures that your child eats nutritious food, and makes him realize that money is not easily given.
4. Assess your needs. What you do with your child’s aguinaldo may ultimately depend on your family’s needs and values. “If your family is experiencing financial difficulty, there may be no choice but to spend the money gifts on your child’s needs,” admits Galarpe. “But if your family is doing well financially, investing the money may be a better option. Parents should talk about the best way to handle the money, and explain it to their child at a level he can understand.”
Money and Baby Talk
My nine-year-old niece, Maxine, places her savings into two categories: Anything below P100, she puts in her piggy bank at home. For amounts above P100, she asks her mom to put in a bank time deposit account. Needless to say, she keeps the passbook and happily sees the progress of her savings.” - Melvin Esteban, uncle to Maxine, 9
“As soon as I resumed working for a bank, I immediately opened a special savings account (similar to a time deposit) for my baby. In it, I deposited everything he received during his baptism - including the maternity reimbursements I got from PhilHealth, as well as any bonuses I received. As for the aguinaldos he got last Christmas, we used it to buy his needs, such as diapers and milk, since it was just a minimal amount.” - Aileen Elizalde, mom to Farris Ethan, 2
“For our one-year-old, we set aside the money she receives until the time she’s old enough to spend it herself. As for our five-year-old daughter, we ask her what she would like to do with the money she receives. If she doesn’t want anything at the moment, we simply set the cash aside for her. Sometimes, we also use the money to pay for their vaccines and medical needs.” - Michelle Sanglay, mom to Mikhaela, 5, and Justine, 1
Photo by kenteegardin via flickr creative commons
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