LAST_UPDATEFri, 22 Jun 2018 7pm

Financial Mistakes We Can Avoid Making If We Learn About Managing Money Earlier In Life

Pic: MoneyTreeAsiaPic: MoneyTreeAsia

Recently the subject of financial literacy was brought up in the news with the question whether we should teach financial literacy to our future generation from a young age.

With so many millennials struggling with debts and financial commitments, shouldn’t we teach financial literacy to our future generation from a young age, and make it a part of the Sijil Pelajaran Malaysia (SPM)., RinggitPlus reports.

In October last year, the Malaysian Financial Planning Council (MFPC) had revealed that 22,663 Malaysians under the age of 35 had been declared bankrupt between 2011 and Sept 2015.

The Second Finance Minister Datuk Johari Abdul Ghani had also highlighted the pressing need for Malaysia to improve financial literacy, in particular young Malaysians needed to be equipped with good financial planning skills.

“This is important, particularly in light of our substantial household debt, which accounts for 89% of GDP.

“Financial literacy is increasingly significant not only to those who are involved in the financial field but also applies to every individual as a tool to manage his money accordingly,” he said at the Malaysian Financial Planning Council’s international conference on Wealth Management and Financial Planning in March last year.

Johari warned that many Malaysians still end up being conned by get-rich-quick schemes.

“They spend all their money and end up losing everything. Some of them are even graduates, and professionals, but they still fall for such schemes because their knowledge on finance and the financial system in not solid,” he warned.

How will the younger generation know how to manage their finances to effectively contribute to society and pay their dues without first learning about it.

Malaysian Digest put the spotlight on a topic many parents may find difficult to discuss with their children and asked experts on the importance of instilling financial literacy in youth today.

“Start Training Them From Young That They Have To Earn Their Keep,” Says Financial Planner

The top mistakes we often hear 20-somethings make are falling into the trap of bank fees, no budget, taking out large loans no matter the degree, not having an emergency fund, and skimping on insurance.

Pic: Adele KhorPic: Adele Khor

Shouldn’t we at least teach financial literacy to our future generation by instilling it in their education from a young age? By the time they start their careers, it might be too late to help them avoid financial pitfalls.

An AIA financial planner, Adele Khor, explains to us how the youth needs to realize that sooner or later their life source, also known as parents, will eventually stop giving them monthly allowance to splurge on.

“Nowadays, we are very blessed to have parents that try their best to give us everything we want. And because of that, we developed the mentality of always knowing our parents had our back.

“So we need to take extra effort in knowing that we cannot spend every single cent in our wallets because we can afford to at that time. When the time comes for the youth to make their mark on the world, they realize that living under their own salary might not be sufficient to sustain the lifestyle that they were used to,” she added.

Adele agrees how we should instil financial literacy to children in their day life and to do so, Adele suggests how everyday, parents should show their children to take out maybe RM1 to just put into their piggy bank - before they start their day in school.

“After the day is over, whatever daily expenses not spent should also go in; to instill the habit of saving. For at the end of the month, they can share together how much they have earn through this simple act of saving.”

As much as we would like to give everything we can to our family, we need to know that too much will spoil the child.

“So start training them from young that they have to earn their keep. If they want a new toy or gadget, give them options to earn it through chores or good grades.

It helps make them more responsible as well as value what they have, she also pointed out.

A recent study by the Asian Institute of Finance shows that Malaysia’s youth are ill-equipped to deal with the increasingly complex and varied financial services and products that they themselves are already using. Combine this with how declining local economy and we get a recipe for monetary disaster down the road.

Early education in financial literacy can help mitigate this problem and prepare future Malaysians with the know-how they need to manage their resources wisely in which case Adele strongly sees eye to eye with.

“On top of all our general subjects, we need more lessons on general knowledge and daily processes.

“Classes on financial management, income tax and applying for jobs should be included so our future generation will know what to do when they become adults,” she suggested.

Many banks have also included financial literacy programmes targeted at youths as part of their Corporate Social Responsibility programmes including CIMB Foundation’s Be$MART programme launched last year while Allianz Malaysia had introduced My Finance Coach programme in 2012 for children aged between 11 and 18 years.

We Ask Parents How They Teach Their Kids About Money

The subject of money is often considered taboo where it’s private and not open for discussion we often pretend that we are more on top of our finances than we are.

However, it is increasingly important that children today get the right foundation in financial literacy and the first step starts at home.

Grace Tan, a housewife shares with Malaysian Digest how she gives her three children a weekly allowance, and teaches them to save what they have.

“Even the very young can be taught how to save through the act of putting money into a piggy bank. Encourage them to save regularly and watch how the savings grow.

“I start by giving RM5 each week to my children when they turn six years old and then I increase the amount progressively each year,” she shares with us.

Mohd Erzat, a father to four sons, emphasises how we should educate our children on the difference between needs and wants.

“Allow them to compare items and organise these under the two categories. Advise them that they should always spend their money on needs first.

“I also take my children along when me when I go grocery shopping to teach them how to compare prices to purchase the items that give the best value,” he told Malaysian Digest.

Erzat also lets them practise by allowing them to choose their own birthday gift and encouraging his older children to do research on the products that they want to buy and compare them.

Aida, an accountant by day and a mother by night, admits that due to her busy schedule, her role in ensuring her children are financially literate may be little. However, thankfully for her knowledge as an accountant, she still has a few tricks up her sleeves.

“Before they entered primary school, I helped them to make a budget to control their spending by teaching them to start by listing all the things that they need to buy and how much each item costs.

“Ideally, I believe children should be taught to set aside some money for savings and the amount of savings to set aside should be factored into the budget.

We should not give our children the wrong impression that the family is poor by saying "we can't afford this”, Aida explains that the aim is to teach them to make good financial decisions.

“Tell them that the family is able to afford something, but chooses not to buy it. This teaches them the importance of good decision-making when spending.”

A local newspaper reported that Bank Negara Malaysia (BNM) and the Education Ministry had introduced a module for primary schools to educate pupils on good financial management.

As part of BNM's financial sector blueprint 2011 - 2020, the bank continues to drive financial education initiatives at the national level and set strategic direction for financial literacy to be integrated into the school curriculum.

The module, containing elements of financial literacy, was incorporated into the curriculum starting 2014 for Year Four pupils and extended to Year Five pupils. Elements in the module include income and career, responsible financial decisions, savings and investment, as well as credit and debt management.

The blueprint also identified introduction of financial education into secondary schools starting 2017 where students can choose to learn about financial management in subjects such as Commerce, Principles of Accounts, and Basic Economics.

If we plan the seeds early in the child’s life, nurture it through their schooling years and reinforce what they learn by practising it at home and in their daily life, this ensures the child learns how to manage finances when they reach adulthood.

Financial Literacy Is Like Sex Education, We Should Start With It Before People Require It

Mark Reijman, co-founder and managing director of Compare Hero, shares with Malaysian Digest the importance of financial literacy in our daily lives.

Pic: Mark ReijmanPic: Mark Reijman publishes an online magazine that helps Malaysians find the right credit cards, personal loans, other financial products, and strives to empower everyone to make sound financial decisions.

Mark outline the three key areas of financial literacy that every individual should be aware of, which are the financial environment, personal finances and personality.

We must first understand our financial environment to provide us the basis of making sound financial decisions, Mark emphasised.

We do this by questioning how interest and inflation works, how do banks make money, the costs involved in owning a credit card, the functions of a personal loan, and how much more expensive is being in installments compared to buying instantly, he points out.

Then we need to understand our own finances in terms of how much and what are we earning and spending, building our savings, and are we on track with our financial goals.

Lastly, Mark emphasizes we need to know and improve ourselves by asking if we can trust ourselves with managing money. For example, how we manage our year-end bonus, whether our will is strong enough to limit expenses, or will we be tempted to lower our EPF contribution and have more money today instead of saving for the future.

For us to incorporate financial literacy among the younger generation, Mark believes in sensible regulations from Bank Negara and self-regulation from the banks to limit the trouble young and low-income people can get themselves into.

“But protecting the people too much through stringent laws, will prevent them from ever learning the consequences of financial illiteracy themselves and does not allow them to become truly independent with full ability of critical thinking.

“The school curriculum could and should definitely include more items that are related to financial literacy, from a young age,” he added.

He also compares it with sex education as we should start with it before we believe people requires it, so that they are fully prepared when they do actually need it.

Besides school playing a role in educating the younger generation on financial literacy, first and foremost this is the parent's responsibility, Mark sternly said.

“As a parent myself, I see how my sons copy my behaviour, hence the importance of being a great role model and manage money wisely.

If the parents fail, it will be very hard for school to compensate. This means financial literacy is important for everyone,” he added.

Many may not fully comprehend as to why it more important for the younger generation to be educated on financial literacy compare to the older generation back then and Mark acknowledges this too in layman terms.

“First, marketing techniques to seduce people have become more sophisticated and secondly, financial products have become more complicated. Third, peer pressure through social media to buy stuff and gadgets has increased.

“Lastly, individuals can depend less on government and family to take care for them and will have to manage their own finances throughout their life (education, home, retirement)," he concluded.

-Malaysian Digest