Don't just invest IN your children, invest WITH your children

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Don’t just invest IN your children,

invest WITH your children

05 June 2020

All parents want their children to have a bright future ahead of them and will do their very best to give their offspring at least the same, if not better opportunities than what their previous generation had given them. It could be in the form of a better education, better nutrition, better standard of living or it could be inculcating good values, good habits or essential life skills in them. Of course, how parents define the word “better” is extremely subjective and there is absolutely no right or wrong because no parent would harbour ill-intentions towards their children.

Not too long ago, we commissioned a survey and found that 99% of parents agree that cost of education in Singapore is constantly rising, and that 96% of them agree that education is important in ensuring their children have an overall successful future.

Read on here: Are you saving enough for your child’s education?

As household incomes continue to rise along with higher cost of tertiary education and skyrocketing property prices, parents come to realize the importance of making their money work harder for them in order to beat inflation, safeguard their children’s future and even give them a financial head-start in life.

In the past, it is not uncommon to see parents turning to insurance savings plan - setting aside a portion of their monthly income in an endowment plan for their because it is not only safer than investing into the stock market, but also because it generates a higher return than depositing it in a bank earning meagre interest.

However, there is a growing number of parents that are setting aside regular sums into an investment plan due to the higher return potential compared to traditional endowment plans, and they have done enough reading to know that the risk is mitigated through a combination of a diversified portfolio, a long-term horizon and leveraging on the principles of dollar-cost averaging.

Read more about dollar-cost averaging: Dollar-cost averaging: How you can use a regular investment plan to grow your long-term wealth

While squirreling away funds for your children’s future is definitely a good thing, having everything well-paved for them without them realizing that money is hard-earned, may not be the best way to inculcate resilience, independence and sensibility.

As the saying goes, “The road to hell is paved with good intentions”

Would you want your children to grow up not knowing how expensive university school fees are, and how long you have scrimped, saved and invested prudently for them?

Would you want to raise children who do not understand the value of money, and simply think that it is a parent’s obligation to buy them the latest toy, latest gadgets, finance them for expensive overseas exchanges in Nordic countries or down-pay their first home just because their friends’ parents are all doing it?

While you ponder these important parenting questions, perhaps it is also worthy to consider taking it a step further by making use of this opportunity to teach your children about financial literacy and the value of money.

Here we highlight 3 benefits of investing long-term with your children, while at the same time, meeting your financial objective of securing their future.

1. Children have an even longer time horizon than adults

Now that you already know that continuous investing over a 20-30 year horizon (which seems like a really long time for adults) could really boost the returns of your investments, how do you think the value of your investments would perform over a 50-60 year time period? It would be even better wouldn’t it?

The earlier you start your children on this journey, in 50-60 years’ time when they retire, they will really thank you for it.

Getting them to think long term also builds patience - a virtue which is so uncommon in the world we live in today that is filled with instant gratification.

2. Get them involved in financial literacy at every age group

a. Pre-schoolers - Teach them about the concept of money

At this stage, most parents will be teaching their children about money. How a piece of paper or some coins can exchange for their favourite candy or toys. Of course, it is also important to let them know where the money come from, that mummy and daddy work hard every day at work so that they can put food on the table.

They should also be able to understand the importance of saving money and not ask you to spend on things that are unnecessary.

b. Primary Schoolers - Teach them the importance of savings

As you start giving them pocket money and they begin to make small financial decisions on their own - what food to buy at the canteen, whether to buy the fancy pencil at the school bookshop, and how much to save every day, there will come a time when they are ready to explore what else they could do with the money they have saved.

Whether is it to spend it on a bigger ticket item, put it into the bank to earn interest, or perhaps even the concept of investing to make their money grow.

Pique their interest by showing your child what funds you own in your portfolio and the interesting companies that the funds invest in might get their attention — plane manufacturers like Boeing, sports gear specialists like Nike, technology companies like Apple, or food and beverage companies like Coca-Cola.

c. Secondary schoolers - Teach them about investments (Risk vs reward)

At this stage, they could probably appreciate more advanced concepts. Start by teaching them the basics of risk vs. reward, stocks and bonds, profits and losses. Show them what funds you own within your portfolio and explain why you chose to invest in those industries or sectors; have them join you in keeping an eye on the fund prices or company specific news.

Once your child feels comfortable enough with the concepts, let them pick out a few funds that he/she is confident in and if they can afford to, buy a few different funds in small amounts and compare the returns of the funds that each of you have chosen periodically as a form of friendly competition. Most importantly, let them try to use their own money to embark on their first investing journey.

d. Post-Secondary/Tertiary

As you diversify your holdings into a few funds, this will allow your child to compare the returns of different types of investments over time. (Bond fund vs equity fund)

At this point, encourage them to invest money they've saved in a mix of equity, bond funds and a savings account; you can help manage their portfolio, while still allowing them to take the lead and experiment.

When the time comes, you can also let your children know that these investments are set aside for them for their future and will be passed down to them eventually.

3. The best way to learn is to teach

Validate your investment decisions while you educate your children about financial literacy and investing. For all you know, they may even teach you a thing or two as you bounce ideas with each other.

The regular discussions and portfolio reviews you all do together could also be a great family bonding activity.

Investing with your children rather than just investing for your children will go a long way in helping your child understand the financial markets better and demystify the process of investing, making it feel more accessible to them when they're older.

As the saying goes:

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

This seems to be especially true for children who still have a lifetime ahead of them.

Kickstart a Regular Savings Plan (RSP) on dollarDEX for as little as $100 a month and embark on your investing journey with your children today! There are 1000 funds for you to start exploring with your child and teach them investing skill sets that’ll last a lifetime.