BUILD SOUND FINANCIAL HABITS EARLY

Build sound financial habits early
Too few youths in Singapore are educated on the importance of being financially literate, says CHELSEA ONG

IT IS important for all youths to be financially literate because the consequences of financial illiteracy affect not only the individual but society as well.

Personally, I feel that not many youths between the ages of 13 and 20 in Singapore are given the necessary exposure or education with regard to financial matters.
Educating youths early will help them build good financial habits.
Financial illiteracy causes people to build up bad financial habits and stumble through their lives by trial and error. It also causes people to fail to manage their credit such as credit cards and loans.
Thirteen-year-olds can be taught and would be able to understand issues such as budgeting, debt, savings and credit cards.
Financial literacy is not just a business skill but a personal lifelong skill that one must pick up as all of us will need to make financial decisions at many different points in our lives.

As they become older, they can be taught more complicated concepts such as time value of money, inflation, risk and returns. We can also start teaching them about financial products such as bonds and equities.
At the Singapore Polytechnic, I teach financial management, which includes the topics mentioned above, to second-year students in the School of Business. Most of these 18-year-olds are able to grasp the concepts and apply them.
Financial literacy is not just a business skill but a personal lifelong skill that one must pick up as all of us will need to make financial decisions at many different points in our lives.
Budgeting
Someone as young as 13 can be taught the basics such as budgeting, which is making a plan of how one will spend his money. Many youths and even adults do not like to establish a budget as they view it as a step towards skimping, therefore depriving themselves of purchases and the fun things in life.
Youths need to understand that establishing a budget helps them to see how they can make the most of their money. In other words, a budget helps a person to get more, not less out of their money.
Although a budget can be amended when one's needs change, youths need to develop the discipline to stick to a budget once it is established.
Savings
Youths should be introduced to the magical concept of compounding in savings when they start this habit at an early age. They can then understand that as they regularly save, not only do they earn interest on what they have just saved, they also earn interest on all their previous savings.
The earlier one starts to save money, the greater the effect compounding would have on their future wealth.
Debt
With regard to debt, they must be taught to borrow only what they need. A lot of people fail to differentiate between needs and desires, and often borrow to buy what they want, not what they need.
Youths must also understand that when they borrow money, they pay twice over, that is, the cost of financing the loan as well as not being able to earn interest on the money. It is also important to realise that when they borrow, they are actually spending away their future earnings.
Credit card
Youths must be made aware that the card issuers' main objective is to try to persuade more of their customers to keep high monthly balances on their books as long as possible.
This is done via very low minimum monthly payments. The smartest users of credit cards are those who pay off their balance in full each month as this way, the user gets a free card and a float on their money before they pay off the balance.
The credit card issuers are then forced to make money from those who keep a balance each month.
In conclusion, not looking after one's money doesn't just lead to financial problems. We also end up burdened with unnecessary debt, and have to work harder and longer to finance our loans instead of building up a retirement fund, lost opportunities to make our money work harder for us, and potential relationship problems.
A good starting point for youths to learn how to manage their money is to learn how to manage their allowances and bank accounts.
I would encourage parents who have gone through some form of financial education to give their children more freedom in managing their money. It is better for youths to make mistakes when they are younger on smaller amounts of money and learn from them.
The writer is a senior lecturer at Singapore Polytechnic's School of Business.
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