You might be aware that millennials make up the largest consumer pool in our country. Not only that, they possess the highest spending power too.
Also known as Gen Ys, millennials are classified as those born between 1980 and 2000. Although they are equipped with impressive paper qualifications and technological skills and armed with a competitive edge, the current situation sees them struggling to stay financially afloat.
A 2015 study conducted by the Asian Institute of Finance revealed that Malaysia’s Gen Ys experienced significant financial stress early in their lives. A majority of these millennials were found living beyond their means and trapped in emotional spending.
AIF chief executive officer Dr Raymond Madden says Gen Ys, despite being the most educated generation, accrue debt at an earlier age and lack understanding when it comes to financial planning. “Our research indicates that many of them are on the back foot when it comes to long-term financial security, as they accrue debt before they even enter professional careers,” he said, as reported by the New Straits Times.
It is important to ensure our children are able to avoid falling into the same financial trap that the many millennials are currently facing.
Here, we list down 5 simple things young parents can do for their children’s financial freedom.
1. Equip them with financial literacy
The AIF study also revealed that 58 percent of 1,000 Malaysian professionals interviewed admitted to having only “average” financial knowledge.
Taking this into account, equipping your children with financial literacy and knowledge should be one of your top priorities. We recommend starting with some fun and inspirational ways to teach your children about money, for example:
- The allocation jars – Give three jars to your children. Ask them to decorate as they wish and label the jars as Spend, Save and Give. Have a simple discussion about each of the labelled jar and why they matter. Decide the amount of money to give to your children, and once every jar is filled, have another discussion about how to best distribute or use the money.
- The brainstorming game – Play a fun, light-hearted game with your kids by asking them to think of smart ways to save and get more money. Encourage them to write down every idea they have — no matter how wacky they are — and to experiment with the ideas in real life if possible.
You can also read Kiyosaki’s bestselling book Rich Dad, Poor Dad which explains what to teach your kids about money and why financial literacy is a critical life skill.
2. Create a savings account for them
Some will argue that you should actually create two separate accounts for your children – one for their education and another for general savings. But whether you choose to combine them or keep them separate, it is important to create them as early as possible.
Put some money away in it and when your children are old enough to earn allowances, teach them the value of saving into these accounts. Help them understand how the more they save, the more interest their savings will generate, resulting in bigger accumulation of wealth.
For those who have children age seven to 12, consider opening a National Education Savings Scheme (SSPN-i Plus) account as soon as possible. The government is currently offering free RM500 for the first 500, 000 accounts opened; a special initiative in the Budget 2018.
3. Make them earn money
Carrying on from the previous point, you should have your children earn allowances or pocket money when they are old enough. Most children love any chance to play “grown-ups” and this, to some degree, allows them to be independent.
It also teaches them how to manage their own finances and to truly understand the value of money. They will understand that (almost) nothing is free! This early exposure towards money will better prepare them for the real world waiting ahead!
4. Get life insurance
One of the best ways to financially protect your children and prepare for the worse is by securing life insurance policies for both your spouse and yourself. Although it might be scary to think that either of you might fall victim to a tragedy, it is a possibility that we cannot rule out.
A life insurance policy will provide financial support to your children and help cover any immediate or long-term expenses. It is one of the most worthwhile investments you can make in terms of protecting their needs in a worst-case scenario.
Life insurance isn’t just for adults though. There are many insurance plans which offer a fixed premium rate throughout your kid’s childhood. This will ensure that they will be able to buy life insurance coverage as an adult, regardless of occupation or health.
Some of the plans that you can consider for your children include:
- A-Life SuperJunior by AIA
- Junior Protector by Great Eastern Life
- Child Guard by Allianz
- Smart Kidz by HongLeong Bank
- PRUmy child plus by Prudential
5. Create a Will
Another step to protect your children’s interests in the case of your death is to create a Will. In Malaysia, AmanahRaya is one of the biggest organisations that offer Will writing services.
For Muslims, a Will allows you to allocate a third of your assets to any person or organisation of your choice and the remaining two-thirds to your rightful heir(s) under the Faraid Law. In the absence of a Will, the whole of your estate will be distributed according to Faraid or family arrangement.
For non-Muslims, a Will allows you to allocate all your assets to any person or organisation according to your wishes. In the absence of a Will, your estate will be distributed based on the Distribution Act 1958 or family arrangement.
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