In the Filipino culture, children tend to live under the protection of their parents even when they reach adulthood. The Filipino family, in consonance with Asian practices, is close-knit. While this strengthens kinship, the safety net offered by an ever-supportive family can be detrimental to a child's readiness to face the challenges of the “real world.”
Help your child make sound financial decisions when he enters college and embarks into adulthood. Here are invaluable tips for you.
There's no such thing as free lunch
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Many baby boomers lament that millennials have a false sense of entitlement. They claim that the young have everything served to them on a silver platter. Are the children solely to be blamed for this so-called entitlement?
Teach your child a simple lesson: “There's no such thing as free lunch.” You have to compensate for everything you receive one way or another. Encourage your college-aged child to get a part-time job regardless of whether you can fully support him or not. This is the most effective way of teaching him the value of money and hard work. Plus, this can prepare him for when he joins the workforce.
Save 20 percent of your monthly funds
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The Philippines has an alarmingly low savings rate. According to recent figures by the Bangko Sentral ng Pilipinas (BSP), a staggering 86 percent of households don't have bank accounts. Interestingly, Filipinos are known to throw grand parties and long celebrations. The country celebrates the longest Christmas season, after all. The domestic consumption is good for the economy in the short-term, but the low savings rate can be problematic in the long-term. This can mean lower capital for investments.
Your college-aged child should have his /her own savings account. This may appear too basic, but the statistics say it all: a significant majority of Filipinos are not saving in banks. One of the reasons the BSP noted was the lack of funds to save. Teach your child to keep at least 20 percent of his monthly allowance in the bank. It's advisable to get a passbook to help him monitor his money – how much he's setting aside, and how often he's withdrawing funds. With consistency, saving a part of his salary can become a habit.
Roll up your sleeves and start investing
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Billionaire investor Warren Buffett once said in an interview: “I think parents need to start teaching kids about the importance of managing money at an early age. Sometimes parents wait until their kids are in their teens before they start talking about managing money when they could be starting when their kids are in preschool.” If you're just about to teach your college-aged kid about investment, you may need to work double-time.
There are various investment vehicles in the market today including stocks and bonds, property investment, and small businesses. With the Internet, you can buy stocks in stock exchanges in Hong Kong, New York, and London. You can venture into foreign exchange, commodities, and other sophisticated investment products available in other parts of the world.
For starters, you can open a mutual fund account for as low as Php5,000. This will allow you to invest in a basket of equity and debt securities managed by a team of portfolio managers. Once you get a little accustomed with the risk-yield trade-off and a bit of knowledge on stock investing, you can then try buying stocks via Philippine-owned trading platform COL Financial (formerly Citiseconline).
“Adulting” in the next level
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Part of “adulting” is making informed decisions. Sometimes, you just have to let your child make the wrong move. No teacher is more effective than mistakes. What's important is that he doesn't commit the same error twice. Just stay behind him as a silent protector. Let him make his own decisions, no matter how unsound, at a young age. But he should be aware that he'll be solely responsible for the impact of said decision. If he chooses to invest in beta stocks or highly volatile securities, despite advice, let him bear the impact of the risk. This can teach him invaluable lessons in investing.
Once he saves enough money with his first years in the labor force, he may consider investing in real estate. The Philippines' property market is a gold mine. A parcel of land bought in the 1990s has likely doubled in value over the years. You may be amazed at the current market value of land in the formerly idle Fort Bonifacio. You can advise your child to save up for his own condo unit. Condos are selling like hot potatoes, thanks to their accessibility and add-on lifestyle amenities. He can rent out the unit to help pay with the monthly mortgages. Any amount he may receive as bonus, incentive or gift may be paid in advance to the bank. In a few years, he'll have a fully-paid up condo unit of his own.
Raising a well-rounded adult is a challenge for every parent. This is why a comedienne once compared having a child to getting a face tattoo: you need to be totally committed to it. Teach your child how to make sound financial decisions by imparting lessons as early as possible. You can let them run a small neighborhood business during their summer vacation. Give them something to be responsible for. To prepare them for the “real world” after their college graduation, offer investment tips for newbie employees. Most importantly, let them make their own decisions despite your opposition on the matter. Mistakes can be life-changing lessons. Just be there ready to catch them whenever things get a little bit complicated.
