For Filipinos, the aguinaldo is a gift, usually in the form of crisp peso bills placed in envelopes, that are given to children during the Christmas season. Aguinaldos can range from a few hundreds to a couple of thousands, depending on how generous your child’s older relatives and godparents are. Every year, you must be torn in between, “Do I let my child spend all the money or do I teach her to save?”
The answer should not be about choosing between the two extremes, but in spending AND saving—smart.
Spending money should not be completely viewed as a bad habit. In fact, if you take a look at the big picture, spending is actually good to the economy. What you can do is to teach your child how to spend wisely and develop a healthy relationship with money. These are some questions that you can use to help you guide your child in making a decision:
Is the item to be purchased a necessity, not a piece of luxury or a trivial one?
Is the item something that your child does not have yet, and is not an upgrade of what she already has?
Will the purchase teach your child new skills and help her advance in her studies or extra-curricular activities?
Is your child pressured to buy the item because it is trendy and it will allow her to fit in?
Will the purchase use up all of her cash gifts?
The ideal answers to items 1, 2 and 3 are yes, while for items 4 and 5 is no.
Allow your child to spend only a small portion of the cash gifts. No need to spend if there is nothing worth buying.
More important than teaching your child how to make proper purchases is to teach her how to make smart savings. Here are some ways:
Open a kiddie savings account, preferably without an ATM card option.
The safest way to keep your child’s money is by putting it in the bank. A passbook will help you and your child monitor the savings, and seeing the numbers grow will encourage her more to save. On the other hand, having an ATM card handy means that your child’s savings will also be accessible for use in buying things on a whim. Going to the bank to make a withdrawal may be inconvenient, but this very inconvenience will help put off unnecessary purchases.
Click here for a list of kiddie savings account options in the Philippines.
Make safe investments.
Looking at the options on the link above, we see how most banks offer interest rates that are between 0.25% to 1% annually whereas the country’s latest monthly inflation rate was at 6% (November 2018). This means that if the same inflation rate will apply towards the end of this year, the value of your child’s savings will be diminished by 5% to 5.75%, sans the applicable taxes and bank charges.
A good alternative is to set aside some of your child’s savings - not all - for medium to long-term financial instruments such as those offered by banks and other reputable financial companies who can professionally manage your child’s funds.
Mutual funds are good products to begin with, especially when you have zero to little knowledge of financial markets like the stock market. Using proper market research, professionals pool your investments and place them in bonds and stocks that have solid track record. You can choose funds that have low to medium returns with the same low to medium risks.
Another option is to get your child a variable life insurance (VUL), which has two in one benefits: first, your child will already be covered while the cost of insurance is still cheap; and second, the investment component of your child’s VUL will allow you to place her money in managed funds that can grow over the years. These also allow eventual withdrawals for certain life events, and health and education needs. Most of all, when your child reaches legal age, the life insurance policy can be transferred to her name and she can reap the rewards of making an early headway in investing.
Help your child get started with her long-term financial goals, get free financial advice.