Children love getting red packets containing money at this time of the year, but the tradition also presents canny adults with a golden opportunity to educate them on money matters.
Older children and teens will often be tempted to go on a spending frenzy with all that extra cash, but it makes more sense to plan ahead on how you can sock your hongbao money away to achieve your savings goals.
Perhaps you could use your hongbao takings as an initial sum to set up a regular savings and investment plan to accumulate wealth. With careful planning and coupled with the power of compounding, more abundance will come your way in the Year of the Earth Dog and the years to come.
Mr Vasu Menon, senior investment strategist, wealth management Singapore, OCBC Bank, says many parents already make use of the season to introduce the concept of money to their children.
"They can guide their children to set up a savings account with the hongbao money. This explains why we always see a spike in new children's accounts being set up, and deposits into children's accounts during the Chinese New Year period," he adds.
Ms P'ing Lim, head of deposits and secured lending at DBS Bank, notes that DBS usually opens 60 per cent more new POSBkids accounts during the festive season compared with other months of the year.
"Many parents also use hongbao takings to start saving early for their child's education. For these parents, there are options such as ManuEdu First, an endowment plan designed to provide savings and protection benefits for their child," she adds.
Here are nine tips for parents and children.
1. Start early
Financial experts say it is never too early for parents to impart good money management skills to their children.
Mr Cameron Senior, head of wealth and international at HSBC Bank (Singapore), notes that most parents discuss these issues with their children only during specific events or festive occasions such as Chinese New Year or when they reach school-going age.
"In fact, the concept of money management can be introduced once a child understands the concept of money and is able to count," he adds.
"It should also be an ongoing conversation where parents help shape how their children manage their allowances and differentiate between 'wants' and 'needs'. Parents should constantly reinforce the importance of not spending beyond their means."
Mr Menon adds that teaching children to manage their finances early is the key to forging strong financial discipline for the long term. Besides building on children's ability to distinguish their needs from wants, an important money concept is how to plan their budget wisely.
2. Instil a savings habit
Some parents make the mistake of allowing children to decide what they want to do with their hongbao takings, including splashing out and spending all of it if they wish to.
A better option is to teach them the value of forced savings by compelling them to salt away a significant portion of their hongbao money before they spend it all.
Parents should also guide their children on how this cash is spent so that they don't fritter it away. Bad spending habits, once cultivated from a young age, are likely to be carried into adulthood and could result in financial problems and setbacks later in life, says Mr Menon.
3. Allocating money for different needs
From an early age, children can be taught how to split their money for saving, spending and giving. And it is important to inculcate the habit of saving before spending.
"Once all the hongbao monies have been collected, your children can take stock of how much they have collected," Mr Menon advises.
"Get them to put aside a significant part of their hongbao money into a savings account before committing to any expenditure, to instil the discipline of saving before spending. Children should then be guided on how to spend the rest of their hongbao money."
Mr Senior suggests splitting the money into three portions - saving, spending and giving - and assigning a percentage to each. Typically, the largest portion could be allocated to savings, followed by giving and spending.
You could encourage your child to save by starting a matching programme where parents chip in dollar for dollar for high-value non-essentials such as the latest PlayStation or mobile phone, he adds.
Mr Alvin Lee, head of community financial services at Maybank Singapore, suggests involving children in family budgeting: "Explain to them how much has been spent each week to cover utilities, the home loan and their education fees, and how much money has been saved after deducting the expenses.
"With a projected savings surplus, let the children suggest how the money can be spent, be it on a holiday trip or a children's concert."
4. Money lessons in daily activities
Teaching a child the importance and value of money needs to start from a young age and goes beyond just the Chinese New Year period.
It can be a powerful learning experience for children when parents introduce the concept of money by incorporating lessons in everyday activities and even in imaginary play.
"Lessons in money management can include trips to the supermarket, to an ATM and to the bank to deposit the hongbao collections," says Mr Menon.
"The idea is to help the child realise that money is finite and that once it is spent, it is gone. Hence, it may be better for the child to save most of his hongbao money so that there will be more for spending on his needs in the future."
He notes that as his wife comes from a large extended family, their two-year-old daughter is fortunate to receive quite a significant amount of hongbao money each year.
He has set aside the money in a savings account and plans to allow her to use some of the funds for her needs and wants when she is older.
"But before she dips into her hongbao savings, I will want her to explain to me what she plans to use the funds for, not just verbally, but by writing down her plans and reasons for clarity of thought. Hopefully, this will train her to think carefully before she spends her savings in the future," adds Mr Menon.
In addition, Mr Senior suggests that parents use overseas family holidays to explain the concept of foreign currencies and exchange.
Ms Chung Shaw Bee, head of deposits and wealth management for Singapore and the region, UOB, suggests using labelled piggy banks to teach children about budgeting.
"You can suggest splitting their pocket money in the following ways: 40 per cent goes towards everyday spending; 40 per cent towards a short-term savings goal such as buying a toy; and 20 per cent towards a long-term savings goal such as buying a bicycle," she says.
6. Needs versus wants
One way to teach children the difference between needs and wants is to split the portion of their hongbao money available for spending into two pools. The needs pool should be significantly bigger than the wants pool. One suggestion is a 70:30 split between needs and wants, advises Mr Menon.
Sit down with your children to explain the difference between needs and wants. Tell them to make a wish list and go through the list with them to distinguish between items that are needs and wants.
Needs would be things that they cannot do without, and wants would be things that they can do without but yet these things make them happy, he said.
7. Make saving fun
A fun way for children to learn about money is to segregate the new notes in their hongbao collection from the old ones.
"I've noticed that kids tend to like to keep the nice-looking notes and can be easily convinced to save the new hongbao notes," says Mr Gavin Chia, head of investment advisory, strategy and managed investments, Standard Chartered Bank Singapore.
"Occasionally, there are special limited-edition $20 bills that are issued so these are definitely hot favourites for collection and would almost always be put aside for safe keeping. If they save their hongbao money every Chinese New Year, they can naturally become savers by sheer force of habit."
Some children respond better to visual stimulus and one way to make saving fun and visual is to apportion hongbao money for spending into "saving jars".
"The larger jars can be for wishes that require more savings (like a trip to Universal Studios), while the smaller jars can be for a specific toy," suggests Mr Menon.
"Encourage children to save any monies collected throughout the year in the savings jars. This activity is visually stimulating and will help your children to understand that some items take a longer time to save for."
8. Monkey see, monkey do
Children tend to model their behaviour on how their parents behave, so Mum and Dad can have a huge influence. For example, parents could model "needs" versus "wants" by letting their children see them saying "no" to something they want.
Similarly, parents should encourage their children to delay instant gratification by teaching them to compare prices of something before buying.
Most importantly, parents should be mindful in encouraging the association of shopping trips with leisure activities for the family. This may unconsciously encourage their children in connecting spending money with fun, and thinking money is unlimited, advises Mr Senior.
9. Value of accumulating and compounding
You can reinforce the savings habit by showing children how their hongbao money grows.
Mr Chia notes that big numbers have a "wow" factor. After a few years of crediting the hongbao money into a bank, parents can show the amount that they have saved. Big numbers tend to have a big effect on children, and this can reinforce their determination to save, he adds.
• Join Invest editor Lorna Tan on March 17, from 10.30am to 1pm, at Ange Cafe, Robinsons The Heeren #02-02. She will be sharing useful tips on overcoming the challenges in providing the best education for your children while you retire in comfort. The fee is $18 per person/$30 per couple. Sign up at events.sph.com.sg/lifegoals
To buy or not to buy? This 8-year-old gets a say
Senior manager Alvin Kuo and his financial analyst wife Low Chuo Man believe in using daily activities to weave in money lessons for their eight-year-old daughter Ashley.
Mr Kuo, 43, says teaching his daughter the value of money has been an ongoing process for as long as he can remember.
"Ashley has been involved in our daily activities and buying decisions since she was young. When we go grocery shopping, she notices the prices of the food that we buy (or don't buy) and over time, develops a gauge of what is reasonable and what isn't.
"Sometimes we notice toys that are interesting or educational and Ashley would ask, 'Is it expensive?'. Our guess is that she wants them, but is concerned whether they are priced reasonably."
Mr Kuo recalls discussing with Ashley how much her eighth birthday party would cost. "She hesitated after learning about the breakdown of the cost. But as parents, we didn't want to disappoint her as it was her first such party. In the end, she was happy to foot the bill with her savings since it was her party."
Six months ago, when Ashley's school announced it would be part of the POSB Smart Buddy programme, she urged her parents to sign her up. The programme aims to monitor expenses and encourage saving.
It comes with an app that offers an overview of the food stalls Ashley patronises at school and how much she spends a day. She has a daily allowance of $2 and whatever is not spent is automatically reflected as savings in the app.
Recently, Ashley asked to "withdraw" $10 from her savings to buy a Little Twin Stars soft toy for her birthday. Her parents used the app to set a $10 goal that lets her track her daily progress of saving towards her present.
Apart from the Child Development Account, Ashley has two savings accounts, including the POSBkids one that was opened under the Smart Buddy programme.
The Kuos have not started Ashley on an investment plan but are considering it.
Mr Kuo says he primarily invests in stocks and plans to one day introduce Ashley to the concept of investing for the long term. "Perhaps we will start with something smaller, such as the POSB Invest-Saver - the initial investment of $100 a month is appealing as we can start a portfolio even with a modest amount of funds," he says.
Money lessons with a piggy bank, paper coins
Financial advisers Amos Lim and his wife Alvina Tiang strongly advocate that money sense should start from as young as possible.
The couple are keen to impart basic financial habits to their two-year-old daughter Aleia.
"For example, we taught her to deposit handmade paper coins into a piggy bank. These tokens are given as a reward when she completes a task, such as finishing her meals without fussing. Once she has accumulated a few coins, we count them together and exchange them for a toy or TV time. This is how we simplify working and saving for a reward so that she is used to the concept," says Mr Lim, 37.
The couple also save the red packets that Aleia receives on special occasions, such as Chinese New Year and her birthday, on her behalf.
As Aleia grows older, her parents plan to add to her financial education by focusing on the value of money.
"We will do this by having her complete minor household chores, such as cleaning her room or helping to wash the dishes, and rewarding her with coins that she can save in her piggy bank. We will then teach her how to save and spend wisely," says Mr Lim.
The couple have started saving for Aleia's future via a mix of financial instruments.
"She has a Junior Savers account with United Overseas Bank, in which we deposit the monetary gifts she has received," he adds.
"We have also started her on a regular investment plan called Manulife InvestReady at $400 a month. For this plan, the premiums paid are fully invested in both equity and bond-related funds with high dividend yields.
"This is because we believe in building passive income, which she can use to meet her financial commitments when she is older, such as the cost of further education.
"We are also planning to get her an endowment plan so as to introduce steady and conservative returns to her portfolio."
Little plastic drawers help sons save and donate
When it comes to kick-starting their two sons on the journey to being money smart, senior digital marketing manager Sean Seow and his wife Gloria Tan, a group account director, believe it is never too early to start.
They bought money-related toys such as a toy cash register so that Zacchaeus, nine, and Zavdiel, six, could role-play and learn about money while still having fun.
And if the children want to buy something, the parents use the opportunity to help them distinguish between needs and wants before making the purchase.
"This helps them to understand that whatever they want or need to spend on is only possible if they save and live within their means," says Madam Tan, 38.
"Their ability to spend will be the reward from saving. This is also our way of teaching them delayed gratification so that they do not take things for granted. If they are given what they want as soon as they want it, it loses its value."
The children are taught to calculate how much change they should expect when making purchases. This also helps them practise their arithmetic skills.
The parents also taught their boys how to set small savings goals and showed them how they can buy presents within the budget they have set.
For instance, each child receives $17 a week.
"We have a chest of little plastic drawers that are labelled 'days of the week', 'savings' and 'church'. In each drawer, we will place $3.40, which consists of their daily pocket money ($3) and what they have to set aside each day - 20 cents for savings and 20 cents for church," says Madam Tan.
"At the end of each week, besides the money that was set aside each day (in total, $1 for savings and $1 for church), they would usually have saved $5. We think that through this method, they will learn the value of saving and giving."
Besides the children's Child Development Accounts, the couple have signed their children up for the OCBC Mighty Savers programme so that the boys have their own monthly savings accounts.
"Every time their piggy bank is full, we will deposit the money into their accounts. The cash gifts for their birthdays and Chinese New Year hongbao also go into their savings accounts under the Mighty Savers programme," adds Madam Tan.
Four programmes to help parents raise money-smart kids
CHILD DEVELOPMENT ACCOUNT (CDA)
The CDA is a special savings account for children up to 12 where the Government matches deposits dollar for dollar up to $3,000 each, depending on the child's birth order.
You can open a CDA with the three local banks. Standard Chartered Bank will cease managing CDAs by end of this year. No initial deposit is required and there are no fees for maintaining the account.
The banks pay up to 2 per cent a year in interest on all balances with no deposit cap, so it makes sense to top up the accounts.
CDA funds can be used for educational and healthcare expenses at Baby Bonus-approved institutions, including clinics, childcare centres and kindergartens.
MAYBANK YOUNGSTARZ SAVINGS ACCOUNT
This account offers an annual interest of up to 0.375 per cent. It also provides complimentary personal accident, hand, foot and mouth disease hospitalisation and outpatient coverage when a minimum balance of $5,000 is maintained.
During the child's birthday month, Maybank will send a list of exclusive birthday treats from its merchant partners to the child, such as one-for-one entrance to indoor playgrounds and dining discounts.
Parents can open this account with a child under 16 and with an initial $10 deposit. There is no requirement to maintain a minimum balance.
From now until Feb 28, customers with a minimum deposit of $38,000 in this account will receive a set of four KidZania Singapore complimentary tickets for two adults and two children.
In addition, customers who open a Maybank Youngstarz Savings Account with a minimum initial deposit of $2,000 will receive a free teddy bear at Build-A-Bear workshop.
OCBC MIGHTY SAVERS PROGRAMME
Launched in 2007, this is an interactive savings programme to help parents inculcate the habit of saving in their children.
There is no minimum deposit requirement and it is eligible for children up to 16 years old.
It has to be opened as a joint account with a parent.
The annual interest rate is up to 0.8 per cent.
Until the end of March, you can get a limited edition hardtop pencil case when you save a minimum of $300 in fresh funds. And if you save a minimum of $1,200 in fresh funds, you get a limited edition hardshell backpack.
POSB NATIONAL SCHOOL SAVINGS CAMPAIGN
Reintroduced in conjunction with SG50, the campaign aims to teach children about good money management, and to make the act of saving fun.
It engages children in the "physical" act of saving by having them buy special edition stamps with their savings to affix onto a stamp card.
These stamps are 50 cents each and can be bought from participating school bookstores or SingPost outlets. Once the cards are filled with 20 stamps, they can be deposited at any POSB/ DBS Quick Cheque Deposit location, and $10 will subsequently be credited to the student's POSBkids account.
POSB is adding a savings incentive by offering a bonus $1 for every $10 saved by each student per month via this campaign.
UOB JUNIOR SAVERS ACCOUNT
This account, which requires a minimum initial deposit of $500, offers the usual perks of a savings account like ATM card, Internet and phone banking for children up to the age of 16.
It has to be opened as a joint account with a parent or legal guardian, who can get complimentary insurance coverage. The annual interest rate is up to 0.1 per cent.
When the child turns 16, the account can be converted into a regular savings account. Parents can contribute to this account regularly and use it as an illustration of how to enjoy the benefits of compound interest.