Financial literacy can help the next generation establish and grow their wealth.
Children may start formulating an understanding of money from an early age and parents play a pivotal role in teaching them how to have healthy and positive attitudes to finances.
Here are five ways for parents to establish a sound financial roadmap for the next generation:
When it comes to financial education, parents should start teaching their children early and cover a range of topics to promote holistic financial literacy, according to Vivian Kiang, managing director and head of Wealth Planning and Fiduciary Services, Asia at RBC Wealth Management in Hong Kong.
“It’s always recommended to educate children early about money management – teach them matters like the meaning of finances, how to value cash and how to save for a rainy day,” she says.
Driving home the importance of good financial habits by taking the time to equip children with the tools, resources and skills will not only help to inspire confidence in decision-making, it might also give them a head start on their financial future.
Setting a positive example for your kids extends to financial matters as well.
Rohit Bhalla, executive director and team head at RBC Wealth Management in Singapore, shares that his experiences with his daughters went a long way toward helping them become aware of financial matters and understand the importance of budgeting.
“Children subconsciously pick up what they see around them. I used to get the girls involved in meticulous budget planning around family activities such as a holiday – the price of tickets, hotel stay, food, entertainment and sightseeing. That made them learn what their parents do for them and taught them how to stretch that dollar,” he says.
Budgeting and financial decision-making do not have to be taboo subjects. Make these activities a family affair by talking about goals, celebrating when you reach them and discussing how they were achieved.
As you work with your children on their learning journey, you will help establish milestones such as saving a portion of their allowance and tracking their spending to keep the family on track to meeting goals.
This is especially important for parents who want to prepare their daughters with as much financial knowledge as possible when they enter the workforce. Bhalla points out that “a solid understanding of finances can be the key to empowering the child” to make informed decisions.
Whether it’s saving for university or setting a target age for retirement, having clear and achievable goals may help keep children focused and motivated to grow their wealth to meet their objectives.
With the trusted guidance of a wealth manager, a family may also discover areas that matter most to their financial situation. An advisor can provide support building a tailored wealth portfolio to ensure decisions made to meet today’s needs won’t compromise tomorrow’s goals.
“Financial goals are the key to empowerment – the ability to think long-term and balance how you spend your money on things today versus planning for things one, five or 10 years from now. I have always encouraged my girls to list their objectives, the timeline to achieve them and distinguish among short-, medium- and long-term goals,” says Bhalla.
Bhalla adds when it comes to wealth planning for the next generation, it’s important to think about the future and work backwards from there.
As a start, have conversations with your children about what assets, such as having a savings account or owning a car, they would like to build; come up with timelines and develop strategies to achieve their goals. Reflecting on his experiences with his elder daughter, Bhalla shares that they discussed how milestones, such as purchasing a car or property, were achievable with a well-thought-out strategy.
“She made a detailed spreadsheet with her revenue and cost lines. And she didn’t stop her contributions into the investment fund while working out her ability to pay her loans,” he adds.
Kiang says that when it comes to investing and wealth planning, every family may want to consider diversifying their portfolio into different asset classes to manage risk. “Children should learn the concept of balancing return and risk – what is considered a reasonable return and how can we mitigate the risk?” she explains.
Ultimately, building wealth for your children is a long-term process that operates more like a marathon than a sprint.
Using trusts and fiduciary services may help ensure your family’s wealth is preserved and passed on to the next generation, while also protecting your assets, personal estate and privacy.
Bhalla highlights the importance of families having proper insurance coverage. Medical, total and permanent disability, as well as critical illness policies are necessary to protect against low-probability yet catastrophic events that could derail your plans.
“Life insurance is particularly important while your family is dependent on you financially,” he says, noting that it is also an invaluable tool to equalize inheritance between sons and daughters alike.
This article contains excerpts from CNA. Read the original article here.
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