I’m the “guest expert” in the October 2014 issue of Smart Parenting. I wish to share with you the two-page article that answers eight questions from the readers.
Question: “My four-year old thinks money grows on trees – actually, she thinks they come out of ATMs. How can I teach her the value of money? What specific activities can we do together to show this?”
Answer: You can bring your 4 year old with you to the bank to make a deposit. Explain to him/her that you give your money to the bank to keep your money safe from getting lost, stolen or spent unnecessarily. Tell your child that because you entrust your money to the bank, they also give you a little bit of interest as your share in the earnings they make from using your money. They also help you save up for the many things you need and want in life. The ATM is just the bank’s tool in giving you back your money that you need to use, not a magic box with a genie inside that gives you cash each time you ask. Show him/her that if you keep on withdrawing cash through the ATM, you will not be able to save up for the things your family will need in the future.
Question: “We just started giving our son, who’s seven, an allowance, and he’s so thrilled! The problem is he keeps on buying little trivial items like yet another eraser from his school’s bookstore. How can we teach him to manage his allowance properly and to save?”
Answer: Managing their allowance was how we taught our sons “Pay yourself first.” We gave each of them a small treasure box where they kept their cash, and a notebook where they wrote down their cash inflow and outflow. Each time they received their weekly allowance on a Sunday, they wrote down the amount in their notebook then separated at least 20% of the week’s allowance as savings. They were free to spend the rest for the entire week. If they ran out of cash before the week ended, we never gave them additional cash. Of course, we were not worried about them getting hungry because they brought baon to school. As soon as the cash in their treasure box reached 500, they deposited in their savings accounts. Once the balance in their savings accounts reached higher than the minimum balance, they transferred their cash to higher yielding instruments like time deposit, money market, stocks and equity funds. (Today you can deposit more frequently because the minimum deposit and balance for kiddie savings accounts are low, some none for other banks.) This habit has been carried out into their early adult life and has given us confidence in their high FQ (Financial Intelligence Quotient)!
Debt by credit card
Question: “How can I get out of credit-card debt? Help!”
Answer: First of all, stop using your credit cards NOW! Cut them up so you don’t tempt yourself anymore. Then set an amortization schedule to pay off all of them. Some suggest starting with the smallest loan so you feel a sense of accomplishment right away. Cost-wise, it’s better to pay off those with high interest rates first. Sell the items in your closet or anywhere in your house that you don’t have good use for, even those you still use but are too luxurious for your current financial condition. Then use the proceeds to pay off your credit card debt. The credit card is such a mighty plastic that should only be used by financially responsible consumers. If you cannot pay your credit card debt in full as soon as you receive your statement, that means you do not have any business holding this plastic which when left unchecked can be fatal to your financial freedom.
Can I afford to be a SAHM?
Question: “I’m a newly-wed with a bun in the oven. Both my hubby and I are working, but we’re open to the idea of me becoming a stay-at-home mom after I give birth. While our baby is still unborn, how can we find out if a one-income household is practical for our family?”
Answer: Record your monthly expenses now and make it a habit. See if there are items you can cut down on. Don’t forget to add the expenses that will be incurred with the baby around. Don’t forget to still make savings as part of your “monthly expenses.” Making saving and investing as part of your life regardless of your income level is the only way you can achieve financial freedom. With regard to becoming a stay-at-home mom, discuss this well with your hubby. Make sure that you are on the same page when it comes to how you will now manage and treat your cash when you stop contributing to the family income. Make sure that you will not feel less of yourself just because your monetary contribution to the family stops. Read the Absolute Community Property under the Family Code so both of you are aware of property and income ownership that you got into when you signed your marriage contract. Start looking for things that you can do from home that will not only contribute to the family income but also help you keep your sanity while your raise your bundle of joy.
Question: “My family lives on a single income, and, needless to say, it’s so challenging. What’s your advice for living within our means?”
Answer: Living within your means is buying only what your current financial condition can afford instead of using what others are buying as your guide. It entails identifying your needs vs. your wants. You never sacrifice a need for a want. You only buy luxury if you can afford to buy at least 10 of it and without sacrificing your children’s education fund, your retirement, etc. Have a budget and record all your expenses to help you stay within your budget. Always include savings in your line items. Treat “savings” as a need. This is the only way to attain financial freedom. Start with your goals so that all the sacrifices you make living within your means become more meaningful to you and your family.
Question: “Because of what happened to those pre-need companies several years ago, I’m wary of educational plans, but I know we must save for my three kids’ college education (they’re ages 6, 4, and 1). How can my husband and I grow our money for this purpose?”
Answer: Your children are still young and you have time to save up for their college education. Equity investments provide the highest return among asset classes in the long term so it’s worthwhile for your to learn more about this, most conveniently, equity funds so you don’t have to do the stock picking yourself anymore. You have at least 12, 14 and 17 years to prepare so you have time. Check out the current costs of education of your preferred universities and try to work backwards what amount should be set aside monthly. Financial planners can help you with this. Enroll in automatic debit arrangements so you don’t have to decide each month. If you find the computed amounts too high, don’t fret, just save and invest what you can afford for the meantime and this goal of providing good education to your children will propel you to look for higher income.
Early (Prep for) retirement
Question: “I’m 32 years old and a career/working mom to two kids ages 1 and 3. I’m already thinking about my retirement. Aside from making regular SSS contributions, how can I prepare my nest egg? I don’t want to become a financial burden on my children in my old age.”
Answer: You have 28 years prior to retirement age and it’s good that you don’t intend to be a part of the vicious cycle of financial dependence, an unspoken Filipino tradition. You may want to use retirement calculators available free online. My husband and I simplified it to be annual expenses x no. of years before you go to heaven! That’s the amount of money you should have when you retire. Have a good combination of equity and fixed income investments. Some use 100 minus your age as the percentage of equity and the balance in fixed income.
Question: “As early as now, how can we parents prepare for the big expenses that come with the Christmas season? Is there a way for us to start cutting costs and managing our holiday budgets even before it starts?”
Answer: How much more do you spend during the Christmas season compared to your regular month? Get the difference and try to save up for that throughout the whole year so it’s not a big shock. We only have a few months before Christmas so maybe cutting down on non-basic items such as weekend malling, eating out, shopping, etc. can take a back seat. Save on gift gift giving by thinking of homemade gifts now.
Rose Fres Fausto, Financial Literacy and Parenting Advocate
This month’s guest expert graduated with honors from the Ateneo de Manila University in 1985 with a degree in A.B. Economics. Married to Marvin, a fund manager, she was an investment banker prior to becoming a full-time mom to her three sons. He writes the column “Raising Children with High FQ” for PhilStar.com and is the author of the books Raising Pinoy Boys and The Retelling of The Richest Man in Babylon. Visit her websites RaisingPinoyBoys.com and FQMom.com, and follow her on Twitter and Instagram (@TheFQMom) and FB (FQMom)