Sunday, March 27, 2011

Make kids earn keep

Interesting article on how today parents teach their children about money sense and how a Professor from US gave his advices.


Make kids earn keep
Source: The Sunday Times, 27 March 2011
By Huang Huifen

When civil servant Sharon Teh's elder son Wesley entered primary school this year, she was clueless about how much allowance she should give him.

'Eventually, I went by the food prices in the canteen,' says the 33-year-old, who decided on $2 a day.

'Sometimes I wonder if I'm giving him too much such that he will not value money in future,' says Mrs Teh, who has another son, Dylan, aged five.

A common concern among parents is how to instill the right values about money in their children.

Professor Lewis Mandell, a visiting professor from the University at Buffalo, has done 15 years of research on financial literacy among young American adults.

In town to teach the executive master of business administration class which his university offers in conjunction with SIM Global Education, he thinks giving kids a regular and unconditional allowance is akin to child abuse.

'The child will have an aversion to work because he will think why work when he can get the money easily.'

The best way, then, is to give an allowance in return for fulfilling expectations for doing chores, practising violin or obtaining a minimum grade. 'To the child, it is no longer an entitlement, it is a payment for a job. He will associate money with performance,' says Prof Mandell.

He also advocates giving a child ownership of his money from young. His daughter, now in her 30s, had an ATM card at age seven. At age 12, she started to invest in stocks, though she subsequently lost $1,000 because of a bad decision.

As a teenager, she was given a credit card in her parents' name with a $500 annual budget for shopping.

'Even if she went crazy and spent a lot of money when she was 13, we could view the bills and have a talk with her. But if the child grows older and you have no control over him anymore, you cannot have a discussion with him,' he says.

Read his advice to three families on their pocket money culture.

Reward child for saving

Seven-year-old Wesley is puzzled whenever his mum, Mrs Sharon Teh, 33, says they are not from a rich family and therefore cannot buy a particular toy. After all, he lives in a condominium apartment and can tell that it is different from an HDB flat.

But Mrs Teh, a civil servant, says: 'I don't want him to spend on toys he already has, so he gets the concept of not spending unnecessarily. We are not extremely rich and it takes hard work, especially that of his grandparents, to get to where we are now.'

Her husband is a human resource specialist and they have a younger son, Dylan, five.

She gives Wesley $2 a day for food. A bowl of noodles in his school canteen costs about $1, while drinks are 80 cents each. He is encouraged to save half that amount. When he does well in tests, she encourages him verbally, not financially.

Prof Mandell says: 'How can you save half of $2? It barely lets him enough to buy his lunch. You want him to develop positive association with savings, so praise him or pay interest for each dollar saved.

'It is understandable that Mrs Teh does not want to buy every toy Wesley demands but she should not say they cannot afford it when they can afford a condominium. The child will realise the truth eventually and will not trust his parents.

'Explaining that he owes his standard of living now to his grandparents does not make any sense to him, as he cannot relate to a lifestyle he has not gone through. Instead, explain that while the family is not poor, they still have to save for a rainy day.'

Happy Says: Hahaha. That's quite a typical Singaporean response. Actually I even thought of telling that my to my (future) children the same thing what the mom did. After all I did grow up with no financial rewards and instead earning my own keep!  But good point noted - save for a rainy day!

Compliance pays

There is a price to pay for misbehaviour for dentist Kuan Chee Keong's three daughters.

When his eldest girl Kaithlyn, 13, refused to wear her brace nightly to correct a spine problem, Mr Kuan, 41, and his wife Benita, 39, a doctor, deducted a dollar from her $15 weekly allowance for every night she defied orders.

He also deducted 50 cents to $1 from the weekly $9.50 allowance for Cherylyn, 10, when she threw a tantrum during tuition. Natalie, nine, gets a daily allowance of $1.50.

'Instead of caning our daughters, we dangle a 'carrot' to make sure they behave. This way, they will feel the pinch,' says Mr Kuan.

When Kaithlyn is allowed to go out on her own next year, he plans to give her $30 each outing for entertainment such as movies and meals. The leftover amount will have to be returned to him.

He also illustrates to them the concept of passive income by showing them his investment portfolio. He has 10 lots of shares worth $2,900 each. He tells the girls they get two lots each, and that they are bought with their money to give them a sense of ownership. In reality, it is not their money.

Prof Mandell says: 'I would reframe the way Dr Kuan deducts Kaithlyn's pocket money. I would say to her, 'To earn $15 a week, you must wear your brace every night. If not, I will deduct a dollar off your allowance next week for every day you do not wear it.'

'He should not make her return leftover money from outings. It provides a negative incentive for savings and encourages her to spend every cent.

'As for teaching the concept of stock markets, he should use the kids' money. That will drive home a stronger point. They will not feel much responsibility for it unless it is their money.'

Happy Says: First initial thought- That doctor is rich! (based on the portfolios spending) But ya kinda of strange to ask for your left over back? Why didn't he thought of asking them to save up that remaining amount instead or "investing" in his portfolios about? Haha!

Learn to live within means

Student Ryan Liew, 19, earns about $180 a week as a part-time sales ambassador at retail chain New Urban Male, and gets $1,000 credited monthly to an account under his mother Li Sew Lan's name for his shopping expenses. However, he can spend only a total of $1,000 in three months.

His father, taxi driver Liew Tiong Bok, 49, also gives him a daily allowance of $25 for food and transport.

Nonetheless, Madam Li, 46, cannot bear to stop giving him an allowance. 'Ryan's income is not enough to sustain his lifestyle. He buys a lot of clothes which he wears only a few times. He buys the same pair of shoes in different colours. He likes watches that cost about $300 each. He also has a huge appetite and eats enough for three,' says the freelance tour guide, who earns about $6,000 a month.

Ryan, a second-year chemical and biomolecular engineering student at Ngee Ann Polytechnic, says: 'I still need my allowance because I don't earn enough from work. I choose to work to experience the hardship because as an only child, I am quite pampered.'

Prof Mandell says: 'Ryan does not need the allowance. It is also a bad idea to give him $1,000 to spend, despite the three-month limit. It is conditioning him to live beyond his means.

'Madam Li works as a freelancer, which means her income is not stable. She should save the money for her retirement. Ryan does not need that large amount of savings from his allowance. Young people's wealth is in their healthy bodies and earning potential.

'She should try to cut his allowance. But it is cruel to condition him to a certain lifestyle, only to take it away abruptly. So she should explain to him her reasons and prepare him by cutting 50 per cent of his allowance now and then completely a year later.'

Happy Says: Today youths are really rich! $1000 in 3 months for shopping?! I probably don't even spend that kind of moolah today excepts when we go overseas for travelling! Once upon a time to earn $1200/mth during the school holidays from my monthly part time job was to pay off that semester school fees and earning extra income during school days by giving tuition and working as sales promoters in weekend and a libraian in weekdays was to pay off my weekly makan allowances! 

However i am really curious what kind of tour guide the mom is working as! $6K a month! WOAH! 

No comments: