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Guiding Your Graduating Child Towards Early Financial Security
Too busy with work and don’t have time to read the full article? Don’t worry, check out our short summary below:
– Adulting is never easy. As a parent, you could provide some guidance on financial habits to soothe your children’s transition into adulthood.
– While you may have made plans for your children when they were much younger, it is now time to let them take charge of their own future.
– Early planning for your retirement is critical in ensuring that you have the means to take care of your own well-being while your children advance towards achieving their milestones.
Guiding Your Children Towards Early Financial Security
Parenting is a long-haul journey that doesn’t simply end when your children enter the workforce. As your children set foot into adulthood, you worry whether they are making adequate preparations for their next chapter in life. Of course, you’d want to be there to guide them as they embark on their adulting journey. But where should you start and what are the options to you/ them?
Are Your Children Ready to Face the Costs of the Future?
How much did a packet of nasi lemak cost when you were your child’s age? Its price would’ve surely increased now due to inflation. Similarly, the cost of bigger-ticket items would have risen, in fact by multiple folds. This, in effect, means that your children would face greater pressure when it comes to saving for their future. Speaking of which, here’s a breakdown of the estimated costs needed to attain each milestone in a typical Singaporean life today.
Seeing these figures makes us ponder over how much the world has evolved and how our next generations are going to afford the costs of the future. A study on Singaporeans’ attitudes towards financial planning^ showed that half of young working adults between 17 and 29 years old have yet to start thinking about financial planning – simply because they felt that it’s too early.
But, how early is considered too early? In fact, their biggest advantage is time. Many also have the misconception that only with large amounts of surplus cash can they kickstart their financial journey. Not knowing where or how to start is also one of the top reasons cited for the lack of financial planning. Your children may be facing similar situations, so why not better prepare them for their future?
Their Financial Literacy Starts with You
It is only natural that we care about our children’s future and ensure that they have the means to fund their next milestones. This is exactly why we believe young working adults should design their own financial blueprint as soon as they begin receiving regular income. As parents, we play a huge role in instilling financial literacy in our children and encouraging them to take their first steps towards financial security.
How can You Empower Your Children to Take Control of Their Finances?
Encourage your children to practise proper money management before they enter the workforce. Whether they’re still studying or undergoing National Service, speak to them about saving a portion of their pocket money, internship allowance, NS pay or even angpow money. This will help them form a habit of setting aside some monies before they earn their first salary.
To prepare your children for their upcoming financial milestones, here are a few strategies to explore:
Ask your children this question: Do they save first and spend the balance, or do they spend first and save the balance? From a young age, we encourage our children to save their remaining allowance for rainy days. While this serves as a good saving habit, it may have unintentionally created the perception of spending before saving. Now that your children have blossomed into young adults, they will understand that saving should come first.
Building a Safety Net
Setting aside at least three to six months’ worth of basic living expenses as contingency funds is a good practice to ensure your children’s ability to provide for themselves in any unforeseen circumstances. Savings or current accounts which offer higher interest rates such as our JumpStart or Bonus$aver accounts are great options to maximise the efficiency of their idling emergency funds.
Purchasing Insurance Savings Plans
If you would like to give your children a head start, purchasing an insurance savings plan when your children are much younger could help them in the long run. Once your children turn 21 years old, transfer the rights over to them and they’ll receive a cash benefit for life. This cash benefit can kickstart their financial journey towards their future needs such as furthering their studies or marriage.
If you have yet to plan for your children because of various reasons, fear not! Talk to your children about getting their own regular premium insurance savings plan that fits their monthly budget. Plans could start as low as S$80/month. Some insurance plans may guarantee their capital upon maturity of the insurance plans which protects their savings while growing it steadily. Your child could be one step closer to achieving FIRE: Financial Independence, Retire Early.
To guide your children towards building up cash for their future needs, consider the following options to start their investment journey:
Investing in Unit Trusts via a Regular Savings Plan
To help your children grow their savings more efficiently, you may consider speaking to them about investing in unit trusts through our Online Unit Trust platform. For the younger generations, a unit trust regular savings plan (RSP) may be more viable as they may wish to start small and increase their investments over time when they achieve career stability. With a minimum investment amount of S$100/month, your children can make their money work harder for them in anticipation of their future milestones.
The beauty of an RSP doesn’t end here. Your children would potentially enjoy dollar-cost-averaging where his/ her average unit cost reduces over time. So even with price fluctuations, your children don’t have to worry about timing risks.
Investing in Equities (Stocks)
If your child has the capacity to make higher-risk investments on the side of caution, you could expose them to equities. Investing in blue chip companies^, which are established companies with profitable gains, could strengthen their portfolio. Some companies pay dividends to their stockholders, and if so, the dividends can be reinvested to purchase additional stocks.
Advise your kids not to put all their eggs in one basket and instead, invest in different industries, countries and asset classes. With SC Online Trading, your children can maximise their trading opportunities, while enjoying smart and seamless trading.
An additional note, cryptocurrencies such as Bitcoin and Ethereum are all the rage right now but they have very high market volatility, so do advise your children to avoid investing on a whim or on their FOMO (fear of missing out) – if they insist on doing so for investment diversification, they should consider not to allocate more than 1%^ of their capital into it.
Avoid Making Your Children the Next Sandwich Generation
Have you heard of the Sandwich Generation? It’s the generation who will need to take care of their elderly parents while supporting their own children’s finances. Without a sound retirement plan for yourself, your children’s financial freedom and lifestyle may be impacted and shouldering more commitments could be a burden for them. Break the cycle and ensure that you and your partner can retire without worries, while your children go on to achieve their own financial goals. To prevent your children from becoming the next of such generation, make sure to have adequate financial planning that can support you such that you age gracefully in your golden years!
Equipping your young adult children with financial knowledge is a large part of your parenting journey and this will extend past your child’s first paycheque. Guide them towards achieving their financial goals while keeping your finances intact. At Standard Chartered, we are here to support you and your family in achieving these goals. To find out more, speak to Standard Chartered’s Relationship Managers or visit any of our branches today.
This article is for general information only and it does not constitute an offer, recommendation or solicitation of an offer to enter into any transaction or adopt any hedging, trading or investment strategy, in relation to any securities or other financial instruments. This article has not been prepared for any particular person or class of persons and does not constitute and should not be construed as investment advice or an investment recommendation. It has been prepared without regard to the specific investment objectives, financial situation or particular needs of any person or class of persons. You should seek advice from a licensed or an exempt financial adviser on the suitability of a product for you, taking into account these factors before making a commitment to purchase any product or invest in an investment. In the event that you choose not to seek advice from a licensed or an exempt financial adviser, you should carefully consider whether the product or service described herein is suitable for you.
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Deposit Insurance Scheme
Singapore dollar deposits of non-bank depositors are insured by the Singapore Deposit Insurance Corporation, for up to S$75,000 in aggregate per depositor per Scheme member by law. Foreign currency deposits, dual currency investments, structured deposits and other investment products are not insured.
The information stated in this article is accurate as at the date of publication.