Raising Financially-Savvy Children

By Lynette Tan

If you’ve only got a minute:

• Starting the money conversation early and teaching basic money management skills can go a long way in your child’s life and it will be one of the best gifts a parent can give.
• Introduce age-appropriate money concepts, together with activities to help reinforce money management skills
• Key money concepts for preschoolers and primary school children include budgeting, saving, differentiating between needs and wants, as well as understanding simple interest and investing.

Equipping our children with the knowledge and skills to manage their finances effectively is crucial for their future success and well-being. Raising financially savvy kids isn't just about teaching them to save; it's about fostering a healthy relationship with money that will benefit them throughout their lives.

By starting young and employing age-appropriate methods, we empower our children to develop good money habits and make informed decisions about spending and saving, so they can confidently pursue their financial aspirations. It will also give them a head start in life and help them progress steadily in their financial journey through their adult life.

Introducing money concepts

Teaching preschoolers about money might seem premature, but introducing foundational concepts early on lays the groundwork for future financial literacy. We can start introducing the concept of money to our children from as young as 3.

Parents can model good money management behaviour and use a variety of resources to expose their children to the usage of money and its related concepts.

Early childhood (Preschool - Kindergarten)

For pre-schoolers, parents can focus on introducing these 4 money concepts:

1. Money as medium of exchange
2. Difference between needs and wants
3. Income – money comes from work done
4. Saving

The first concept that we can teach is to let children understand the usage of money as a medium of exchange for goods and services. For instance, I allowed my child, presently age 7, to hand over the money to the cashier when we visit the bakery, since she was 3.

While this might seem like a simple act to adults, it is teaching the child that we need to pay for items when we shop. I would also explain to my child that we cannot take items out of the shop without paying for them.  

Parents can also start to familiarise their child with counting coins and dollars once they are in kindergarten. It can be as simple as teaching them to identify the different values of the coins and notes to doing simple addition and subtraction.

The second concept we can teach preschoolers is understanding the difference between “needs” and “wants”. Needs are things necessary for survival and well-being (food, shelter, clothing, education), while wants are things we desire but can live without (toys, video games, candy).

Parents can use the following ways to reinforce the concept of needs vs wants:

Suggested Activities:

1.Visual aid: Create a chart with 2 columns labelled "Needs" and "Wants." As a family, brainstorm and categorise items. Discuss the difference between a need for a water bottle for school versus a want for a specific brand of sneakers.

2. Shopping scenarios: While shopping, engage your child in identifying needs and wants. Discuss why certain items are needed and others are wants. This real-world application helps solidify the concept.

3. Storytelling: Use children's books or create stories that illustrate the difference between needs and wants. A story about a character needing food and shelter versus wanting a new toy can be effective.

Next, it's important to introduce “where money comes from”. While preschoolers may not fully grasp employment and income, they can understand the connection between effort and reward through chores. Simple tasks like tidying up a room full of messy toys and games, or helping set the table can be rewarded with small, age-appropriate incentives. This establishes the principle that work leads to rewards.

Finally, the concept of saving money can be introduced through a piggy bank. Instead of spending all their small rewards, encourage them to save some. You can also use a transparent coin bank to emphasise the growing pile of coins, fostering a sense of accomplishment and understanding the value of patience and saving. By using these simple, playful methods, preschoolers can begin their financial literacy journey with strong, positive associations and a foundation for responsible money management.

Lower Primary

Primary school marks a new milestone for your child. Primary one children will now experience buying food at the canteen with their allowance. For the first time, children may feel like they have some control over what they can do with their money (Hello bookshop and ice cream!)

Children in this age group can focus on reinforcing the concepts from preschool, and we can add on simple budgeting skills, as well as let them experiment with setting their own savings goals.

Parents can start with giving their child a set amount of money per day as allowance and let them save the rest of what hasn’t been spent. Once they are more familiar with how much they’d need per day, parents can start to give them a weekly allowance so that they can plan on how much they want to save and spend.

• Money Jar System

We can introduce the Money Jar System, where we encourage children to split their weekly or monthly allowance into 3 money jars – Spend, Save and Share.

This system involves putting money into 3 jars or categories like spending, saving and sharing. This helps children lay the foundation for responsible financial habits in the future. It is suggested that they put 70% into spending, 20% into savings and 10% into sharing (charity, or buying a gift for a friend/family). If a child struggles with percentages, you might want to explain using proportions instead, as illustrated in the graphic above.

Using this system helps them practise making choices and learn how to allocate their resources.

Use the POSB Smart Buddy as a financial tool

You can use a digital tool such as the POSB Smart Buddy to help your child get better at budgeting and saving. It is the official partner for e-payment across all Singapore schools. Not only can your child use the Smart buddy watch or card to make contactless payments in school and/or at selected merchants, it lets them check on account balances, and track their fitness levels.

Paired with a mobile app, you can allocate allowances, manage your child's finances on the go and set savings goals to track together. In addition, by linking you and your child’s bank account to the app, allowances can be debited within set limits and savings can be automatically transferred into his/her savings account.

Setting savings goals and practising delayed gratification

It is common for children to request for something they desire, such as a specific game or toy, from their parents. Encourage your child to set short-term savings goals so that they can buy the item they want instead.

Setting a savings goal and having a savings habit build motivation and reinforces the concept of delayed gratification – the ability to resist immediate pleasure for a later reward. Discuss the importance of patience and planning. Celebrate their accomplishments when they reach their savings goals.

Upper primary

For children aged 10-12, parents can use a savings account to introduce the concept of interest, and how certain financial habits can work our money harder.

To aid in teaching these financial concepts, you may want to consider opening a deposit account such as the POSB My Account for Kids. Not only can they deposit their hong baos received during festive periods and birthdays, they also get a head start in building their savings.

Use this as an opportunity to explain the concept of interest – something which he/she would be exposed to if you had introduced a savings matching scheme. Over time, the savings will compound, which make it a good time to tangibly show the power of compounding and the benefits of regular saving.

Finally, introduce the basics of investing in a simplified manner. Explain that investing involves using your money to potentially earn more money over time. Use simple analogies, such as owning a small part of a company (stock) or lending money to a company or government (bond). Focus on the long-term benefits of investing and the importance of diversification (not putting all your eggs in one basket).

These will provide them with a concrete example of how their money grows over time. These early lessons will set the stage for responsible financial management in their teenage years and beyond.

Throughout all stages, consistent reinforcement, engaging activities, open communication, and adapting teaching methods to the child's developmental level are crucial for success. Starting the money conversation early and teaching basic money management skills can go a long way in your child’s life, and it will be one of the best gifts a parent can give.

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Disclaimers and Important Notice
This article is meant for information only and should not be relied upon as financial advice. Before making any decision to buy, sell or hold any investment or insurance product, you should seek advice from a financial adviser regarding its suitability.