Early Education: It’s Never Too Early to Teach Your Kids About Property Investment
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The escalating cost of living over the past few decades has made it harder and harder for individuals to own their own home. In Malaysia, according to the First Home Scheme, a first-time homebuyer must be age between 24 and 34 years old.
However, Kuala Lumpur City Plan 2020 (2008) has defined a first-time home buyer as an individual in the age range between 20 and 40 years old. Usually, this group will comprise singletons or someone with a small household. Other than that, this group also represent those professional individuals who have just started their first job; meaning most of them would be unstable in terms of financial resources and stability.
Although most Asian parents are happy to accommodate their adult children (and their families) in their homes, educating children early on the importance of saving up for their first home is a necessity. If it isn’t merely for the sole purpose of encouraging your children to ‘launch’ themselves, raising kids who are money savvy will go a long way to serve them as adults. Here are some simple ways to start:
1. Train Your Kids to Save
Saving is an important skill that needs to be incorporated early in everyone’s life. With every penny saved from doing house chores or getting good grades, teach your kids to make wise spending choices. For example, explain to them how long it will take to save up for a new pair of Nike Air Jordans that they want using the money that they have saved up. Hopefully, it will help put the value of money into perspective.
2. Teach Your Kids About Compounding Interest
Compound interest is the main concept in understanding the importance of making an investment. A good way to explain this to your child may be to use physical items, such as coins, toys or candy. For example, you can give them four items and call it the ‘principal’. Then say that after one year, you will give them an extra item for every two that they still have with them. Describe this earning as ‘interest’. From here on, you can give out ‘interests’ and explain how leaving the interest to accrue every year will multiply into greater gains over time, than if they decided to take it out and spend it. This in turn will also help them to understand the significance and value of delayed gratification.
3. Teach Your Kids About Appreciating and Depreciating Assets
As your children grow into young working adults who are earning their own money, they will soon be enticed to spend their money on flashy things, such as sports cars and designer wears instead of saving up to buy their first house or setting up an investment account. Teaching them about the difference between appreciating and depreciating assets will paint a clearer picture for their next stage in life. Most importantly, you will have to be a living and breathing example for them to look up to.
4. Teach Your Kids About Risks and Rewards
There are different types of investments with varying levels of risk. Explaining the two primary types of financial investment to children is a good way to demonstrate the concept of risk versus reward. For example, bonds are bought when you lend money to the government or a company. This is generally considered low risk but will yield you relatively low potential returns. Stocks or shares are portions of a company you can purchase. Unlike bonds, there isn’t really any guarantee you’ll even get your money back, but these types of investments are appealing due to the potential for high returns. The great thing about the relationship between risk and reward is that it applies not just to real estate investment, but in other areas of life as well.
5. Teach Your Kids on the Value of Property Investment
With property investment, not only will you earn income from renting, but you will also be able to make huge capital gains with the property’s value appreciating over time. This type of investment can also be easy for young kids to understand, as real estate is something you can touch, see and builds on the fundamentals of investing.
The views and opinions expressed in this article are those of the authors and not intended to malign any company, individual or necessarily reflect the official policy or position of any agency or organization. Focal Times is a subsidiary of Maxworld Consulting Sdn Bhd, a regional organization founded by a mixture of agile and experienced corporate finance, venture capital and industrial experts. This establishment focuses on sharing current banking affairs, latest property developments and updates and more.