Chinese New Year is around the corner and your children are probably really excited about collecting ang baos (red packets)! The challenge for you as a parent is to teach them good values around money and help them grow their ang bao money without spoiling the fun.
Here’s what to do with your children’s ang baos to help them manage their money
1. Teach them the concept of earning, spending, saving, and investing
It’s important for your children to understand why they are given ang baos and how to handle them. If they are old enough, give them the responsibility of keeping their ang baos until the end of the celebration and counting them.
Then, ask them what they would do with the money. Guide them to portion their money into different categories, such as “spend”, “save”, “invest”, “give”.
2. Save a portion in a higher-interest savings account
Help your child understand that saving helps to grow their money that can be used to buy things that matter to them or to further grow it. Discuss with your child how much to save out of all the ang bao money.
If you are depositing the money into your own savings account for higher interest, do record down your child’s contribution and share with them the gains they have earned periodically. Also, when depositing the money, bring them along so that they can see how it’s done.
Related: Best Savings Accounts in Singapore
3. Contribute to your child’s CPF account
Many parents aren’t aware that they can open a CPF account for their child with any amount of cash top-up. This is good practice as you are kick-starting their retirement savings early without having to wait for them to enter the workforce. The almost risk-free compounding interest the CPF earns is hard to beat and topping up early just means you start compounding early.
How the contribution works is the same as how it works for any CPF member.
You may make a voluntary CPF contribution to all three CPF Accounts or only to the Medisave Account.
Contributions to all three CPF accounts will be distributed according to the current allocation rates based on age. The current allocation rates can be found here.
Special Account top-up
You may also make top-ups to your child’s Special Account to earn higher compounding interest, up to the current Full Retirement Sum – $161,000.
According to CPF, assuming you contribute the maximum amount and the floor interest rate of the Special Account remains at 4%, your initial contributions can compound to some S$1.5 million over the next 55 years! Okay, we know your child can’t possibly get so much ang bao money but you get the drift!
4. Invest the money
You can also use your child’s ang bao money to help them invest in Singapore Savings Bonds with just a minimum investment of $500. Teach them the basics of how bonds and other investment types work and monitor the gains regularly with them. You never know, they may want to save up to invest in others things!
5. Donate a portion
Life is more than just earning and spending. It’s also about giving. Giving can bring more joy than spending on oneself. It also teaches your child compassion and empathy.
Discuss with your child and help him/her discover a cause that they are interested in and help them see how their money, no matter how little, can help impact lives.