This article was written in collaboration with SGX. All views expressed in this article are the independent opinion of DollarsAndSense.sg
If budget isn’t a constraint, most parents would invest on behalf of their children. Typically, this would involve buying an endowment plan to fund for their children’ education. Parents that have more time and investment knowledge could also choose to invest on their own, on behalf of their children.
However, when your children grow older, it’s beneficial to start involving them in the investment decisions that you are making. You can explain to them the importance of investing and even let them have a feel of how it’s like making their own investment decisions for themselves.
Set The Example You Want Your Children To Follow
One of the best ways to get your children interested in a topic is to set an example for them. Whether it’s good eating habits, daily reading time or speaking politely to others, many children pick up habits based on their example set by their parents.
By cultivating the habit of investing diligently into the stock market and making it a point to explain to your children what you are doing, and the reasons why you are investing, you will expose them to the concept of investing from a young age, providing them with the foundation to learn more on their own as they grow older.
One example of how our interests as parents can easily influence our children can be seen from one of our most popular DollarsAndSense contributors Loo Cheng Chuan.
Loo is the father and founder of the 1M65 movement who has successfully inspired his own children to save up and top-up their CPF account on their own accord. Because Loo believes in getting good risk-free interest from his CPF account, his children have likewise followed in his footsteps.
If you are keen to not only invest on behalf of your children, but also to partner with them on their investing journey, here are a few simple tips which you should consider.
Tip #1: Start Small
As anyone who has learnt a new skill would tell you, it’s always important to start small.
If this is the first time you are learning how to swim, you should start at the wading pool, not the deep end of the pool. If you are learning how to cook, start off with a simple dish and a small serving, instead of cooking a multi-course meal for a large group.
Likewise, if you are looking to teach your children how to invest, start investing with a small sum of money first.
In Singapore, you can help your children start their investing journey through Regular Shares Savings (RSS) plans. RSS plans allow you to invest a specific amount of money each month into stocks, exchange-traded funds (ETFs) and real estate investment trusts (REITs) on the Singapore Exchange (SGX). This can start from as little as $100 a month, with no minimum investment period required, making RSS plans an affordable and convenient way to get started.
Watch this video below by SGX to understand how RSS plans work in Singapore.
It’s important to start small because mistakes will inevitably be made during your investment journey. By starting small, we give ourselves more leeway to make mistakes – without having to worry about losing too much money.
Tip #2: Invest In What You Know
An investment advice to impart to your children is the importance of investing in what they know.
All too often, investors, even the most experienced ones, get blinded by their desire for high returns that they end up investing into assets that they may not be familiar with. This exposes them to higher risk when they put their hard-earned money into investment vehicles that are foreign to them.
At DollarsAndSense.sg, we always advocate for people to invest in assets that they understand and are comfortable with. This is also why starting your investment journey in Singapore would make sense, since we would be familiar with the companies which are operating in our country.
For example, if you are someone that has a mobile plan with Singtel, you would understand the value proposition Singtel brings to the table and possibly consider purchasing Singtel shares. Similarly, CapitaLand Mall Trust owns 15 malls all across Singapore, including Westgate, Bugis+, Raffles City and Junction 8. If you frequent these malls, you can derive your own judgement on the mall’s performance based on the foot traffic, store offerings and type of crowd present at the mall. This provides you with good insight on whether you should invest in CapitaLand Mall Trust.
By investing in the companies that around us, it would be easier for our children to relate to what these companies do, what services and products they offer, how they operate and what their business model is. They will then be able to determine for themselves how good the company is and whether they should invest in it.
Tip #3: Encourage Your Children To Be Involved
The phrase “skin in the game” holds true here.
Your children would naturally feel more committed and involved in the investments made if you allow them to use their own savings to make investments for themselves, rather than providing them with the money to invest.
This follows the same principle behind getting them to save up their own allowance in order to buy something they want, rather than buying it for them.
RSS plans are a convenient way for your child to get started on their own investments. Both the DBS Invest-Saver and OCBC Blue Chip Investment Plan allow you to invest on the SGX with the funds being deducted directly from your designated savings account. This way, your child is able to see for themselves where the money for their investments is coming from.
You can advise and discuss with your children on which providers they should be using in order to minimise their transaction cost, based on the counters they intend to invest in and how much they are going to invest each month.
This is a great way to get them to start thinking about how they should choose the right investment platforms that would suit their investment needs best, at the lowest possible cost.
In order to start investing in companies and other securities on SGX, a Central Depository Account (CDP Account) is required. However, your child needs to be at least 18 years old to open the account.
This means that until they turn 18, any investments which are made for them has to be done by you, on their behalf.
In order to avoid mixing your own personal investments with investments which are made on behalf of your children, one simple workaround is to have different RSS plans (under your name) to be designated for your children.
For example, if your child already has a joint-OCBC savings account with you, you can use the OCBC Blue-Chip Investment Plan to invest for them. Alternatively, you can also have a joint-savings account with any banks that you share with your child, and use the savings from this account to fund the investments being made through the Maybank Kim Eng Monthly Investment Plan or the Phillip Share Builders Plan. By doing this, you can (unofficially) hold a stock portfolio which belongs to them.
When they are old enough to have their own CDP account, they can take ownership of this stock portfolio from you, subject of course to your approval.
Teach Your Kids How To Invest
As the saying goes, give a man a fish and you feed him for a day; teach a man to fish and you feed him for a lifetime.
While most of us don’t literally expect to teach our children how to fish, this is a principle we can carry over to investing. When we partner alongside our children, we will be able to put them in the best position to succeed in their own investment journey.