Rich dad, rich mom - A baby-boomer's perspectiveREGARDLESS of your child’s career ambitions, the benefits of acquiring the skills to earn, save and multiply money are obvious. Your daily financial transactions require financially educated decisions. That means you have a wealth of expertise to teach your teens about money.
Let’s put this in an equation. You can either use a hypothetical number or show your salary slip to illustrate how this equation works out. If it’s applicable, your teen’s experience in a vacation job would make an ideal example.
Income = [Earnings per hour] x number of hours worked.
To increase your income, you either sell your skills to land a higher paying job or work longer hours. The equation also highlights how earnings per hour shrink when you work longer hours in a fixed-income job.
If your income varies based on sales commission, show how your income each month varies in relation to the number of hours you put in, and how other factors – such as spending time to improve the sales pitch, defend against competition, build relationships and learn new skills – affect income.
Borrowing a quote from Thomas Edison, convey this message: Being a genius in earning money is 1% inspiration, 99% perspiration.
The simple equation below relates savings to income. Savings = Income – Expenditure. Show your teen how your income is spent, the household bills and what percentage of income they account for. Explore ways to reduce expenditure. Help your teenage child to weigh the opportunity cost of buying the latest branded goods versus saving up or multiplying current savings. To do this without inculcating a scarcity mindset, teach them “how to fish instead of giving them fish”. Let them work for it to appreciate the virtues of delayed gratification.
In today’s setting, many teens can easily afford luxuries with money obtained through parents or vacation jobs. Therefore, do not shield them from lessons borne out of periods of financial crisis or directly paying for big-ticket items such as the roof over their heads, school fees, the car they travel in and the fuel that drives it.
At a later stage, you may include tax, provident fund and insurance elements but for now, focus on the key message: The less you spend, the more you save. The more you save, the better prepared you are to stave off unforeseen emergencies or pursue investment opportunities. Set a target monthly savings rate for your household.
Savings can be multiplied through prudent investments. There are many instruments of investments, ranging from the basic to the sophisticated. If you are not familiar with these, consult a financial expert and bring your teen along. Here’s a chance to bond with your teen and get more financially literate together. If you are trading in stocks and unit trusts, give an Investing 101 lesson and share how you invest, what you invest in, and the lessons learned in your making profits or losses. Teach the virtues of patience and contentment. For further coaching, create a mock investment challenge for your teen.
Risk appetite depends on the individual and for some, learning how to manage risk may entail, as playwright Ray Bradbury puts it, “jumping off the cliff and building wings on the way down". Alternatively, investment could mean starting one or more businesses. Work out a simple business plan with your teenage child.
Explore possibilities and assess the return on investment. Who knows, this could lead to real rewards. While financial literacy is an important life skill, teaching your child about money without touching on values such as sharing, caring and giving to charity would ultimately be a disservice to your teen’s character. As author-cum-TV host Suze Orman says, “People first, then money, then things”.
Several sites that offer financial literacy quizzes:
CPF Interactive Features
Jump$tart 2006 Financial Literacy Quiz
Financial Literacy Short QuizTest Your Financial Quotient
Financial Literacy Quiz
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