MakingCent$Meet

Piggyback your way to a fatter piggy bank

PHOTO: MORGUEFILE

A savings or investment plan can reap bigger gains when family members chip in, too

Clearing out the storeroom in my house recently, I spotted a piggy bank. It was no longer usable - it had a couple of deep cracks - but I decided to keep it as a memento. After all, I had used it in the past to prove a point: That a family that saves together can reap quicker and greater rewards.

When my two sons were growing up, both had piggy banks. They would deposit whatever was left from their weekly allowance.

My wife and I provided a sweetener - we would put in the same amount they pitched in, whether it was 10, 20 or 50 cents.

We did it to inculcate a habit of saving and curbing or deferring non-essential spending.

We also wanted them to experience first-hand how even small sums stashed away could grow to a tidy amount over time.

From the simplicity of just slotting coins into piggy banks, they have since become more financially savvy and know that their targeted returns should at least beat the annual inflation rate.

When they were in their teens and had bank accounts, the same one-for-one incentive applied.

Fast-forward to today and my wife and I still dangle carrots even as our sons are now in their 20s.

One is working and the other will start soon, but also has savings from vacation and internship stints over the years.

From the simplicity of just slotting coins into piggy banks, they have since become more financially savvy and know that their targeted returns should at least beat the annual inflation rate.

But because they do not have much money to invest at their age, they find it challenging to generate higher returns - to fund dreams of buying their first property, preparing for marriage and family life and taking care of current needs like splurging on vacations and supporting charitable causes.

They have bought investment-linked insurance plans whose annual premiums are settled by monthly instalments.

This does not burn a hole in their pockets since a $150,000 plan - which my elder son has gone for - will set back the policy-holder by only $200-plus a month.

But what else can they do to grow their limited cash at this stage of their lives, a situation many other young adults also face? How can they hope to earn more than, say, the meagre returns that bank savings accounts offer, which is not more than 0.2 per cent per annum?

That's where my wife and I have come in as their partners in co-saving or co-investing - a move which opens up a bigger range of more lucrative options.

Take Maybank, which is offering a five-year structured deposit that offers a potential total payout of 11.3 per cent.

However, my sons do not have the minimum $30,000 to invest. But if my wife and I cough up, say, half the amount, this lowers the entry barrier considerably for them.

Then, both sides can split half the interest, or the parents can let the children keep all, or most of, the returns.

In my case, my elder son and I have decided on a 25:75 investment ratio. But I will let him keep the returns.

It is better to team up with him than just giving him pure cash - though there is nothing wrong in that too - but a partnership carries a commitment from him to pursue a surer financial footing early in working life.

Or if $30,000 is too much for those who are also keen on this idea, there is also potential in getting more out of the bread and butter savings account.

Do some homework, for it is often not heavily promoted or advertised. Typically, the bank will pay higher interest, but only if you link the account to several monthly transactions.

These range from depositing your salary into the account and charging credit card fees to it, to buying financial products from the bank.

Again, my wife and I can step in to help our sons by simply diverting some regular financial obligations to the account, say the payment of utilities or insurance bills.

This is what I will do for my younger son, taking advantage of an account with one of the local banks which pays up to 3.33 per cent per annum interest on savings.

The conditions are not too hard to satisfy - just spend $500 monthly on the credit card, credit salary or pay three bills monthly via Giro.

The co-sharing principle can be extended to buy more risky - or pricier - assets like bonds and shares. And it may be a good time now to pick up blue chips, especially if you believe the current market downturn has made valuations and prices more attractive.

You and your family members will have to work out the permutations of who contributes what, decide on whose name the shares are lodged, how big a portfolio to go for, and how the dividends and sales profits (or losses) will be apportioned.

My family has identified five counters - three banks and two telcos - for our portfolio.

All of us will put in the same amount - $5,000 for a start - and we are monitoring the prices to determine a good entry point.

To be sure, it is easier to thrash out such finer details as a family than with, say, friends or colleagues who can also be potential partners in saving and investing.

Once you believe that the family that saves together makes sense, then the strategy can also be applied by family members to help boost their aged or retired parents' savings.

One benefit: My wife and I look forward to sharing some of the returns with the grandchildren.

A version of this article appeared in the print edition of The Sunday Times on September 06, 2015, with the headline 'Piggyback your way to a fatter piggy bank '. Print Edition | Subscribe