As we just celebrated the Chinese lunar new year, the festival brought cheer to children as they collected red packets from their elders. For parents, this can be a timely opportunity to introduce the concepts of money management and financial literacy, which will give their children a firm foundation for a lifetime of making
sound financial decisions.

The giving of red packets, thought to exorcise evil spirits and restore peace, is also expected to bestow happiness and blessings on the younger generation. As many of us live in an increasingly affluent society, children often no longer have to wait for presents on a special occasion, and red packets are no longer a child’s sole source of income throughout the year.

Besides, growing up in an increasingly cashless society with fewer opportunities to handle banknotes makes it harder for children to understand money.

Children as young as three already have a rudimentary understanding of money, while six to 12-year-olds begin to form values which is the best time to cultivate financial management concepts. Children older than 12 can actively participate in wealth management.

The red packet season is a great opportunity for parents to teach children about the wisdom of managing money and to cultivate good financial habits. While they do, they are not only giving them the ability to understand and control money; they are teaching them that they can be self-reliant, assume responsibility,
and have a healthy relationship with money from an early age.

Financial education should be regarded as a lifetime, continuous process. Parents could consider the following four aspects to cultivate children’s financial concepts and skills.

First, saving

Saving is the first financial concept for a child to learn. Parents can accompany their young children to the bank to open up a savings account. By participating,  children will have a better understanding of saving and the bank's function, but they also know that they have the right to use and control the account. This
will gradually strengthen their sense of responsibility.

Children often have desires of something to purchase. This is where parents can guide them to set specific saving plans and give them something tangible to aim for. This is a great time to calibrate their child’s attitude towards finance. 

Second, spending

Parents should guide their children to thoughtful and responsible spending, such as encouraging them to list things they would like before purchasing whilst defining the difference between wants and needs. This is an important aspect of instilling the concepts of financial responsibility and cultivating the ability to make
smart choices. With gains and expenditures, a good outlook on consumption will be gradually formed.

Parents can introduce an account book for their children to record every saving and spending of pocket money. Keep in mind that children observe and copy how their parents act, so a good example needs to be set so the child can also make sound financial decisions.

Third, investing

As children become aware of money and other financial concepts, this is a good time to show them the power of accumulated wealth. The basics of investing can be taught when children are between eight to 13 years old. Parents could show their children what financial instruments they own and explain why they
chose to invest in those products.

Once their child feels comfortable with the concepts, they could let them participate or choose a product such as funds with a low entry point but good yield. This is a good way to cultivate children’s wealth management concepts and basic financial knowledge and understand building wealth.

For families with good financial knowledge and experience, they can consider introducing foreign exchange knowledge and other investment channels.

Four, giving

It’s also equally important to change the focus to giving rather than solely receiving. Parents could encourage children to help the less fortunate by donating to charity or supporting a worthwhile cause. This is a timely opportunity for children to connect with society and establish a social responsibility that will positively impact their future growth.

The lunar new year is when many children get to handle their own money for the first time, and it is a great starting point to begin wealth management and financial education. Encouraging children to hold responsible views about red packets and wealth at different stages of their lives reflects parents' respect for their children, nurtures their ability to accumulate wealth, and establishes a concept of money, consumption, and values from an early age.

Verawaty Zhao is the head of wealth management at Bank HSBC Indonesia.